APROJECT REPORT

ON“FINANCIAL REENGINEERING”

SINHGAD INSTITUTE OF BUSINESS MANAGEMENT

AND RESEARCH

KONDHWA (BUDRUK)

PUNE-411041

A minor Project

Submitted in partial fulfillment of the requirements

For the award of

PGDM (AUTONOMOUS)

IN

MARKETING

SINHGAD BUSINESS SCHOOL

GUIDE: SUBMITTED BY: KUMAR ROHIT

PGDM [MKTG]

2008-2010

ACACKNOWLEDGEMENT

I have done my best to present a comprehensive and expensive report over the project.

“FINANCIAL REENGINEERING”

Thanks giving seem to be the most pleasant of all jobs but it is none the less difficult when

one tries to put them in words. Can these humble words and expressions or gratitude really

convey the heart felt acknowledgment that are due to the weak words and the expressions

fainter than what it should be. I am thankful to all our faculty members who has inspired

and guided for completion of the project. His teaching us has been a milestone for us to

complete this project work in a very limited time.

Last but not least I am thankful to my friends who directly and indirectly co- operate,

encouraged and inspired me to achieve my target.

ABSTRACT

The business environment of the present day has become so complex that organizations

are necessarily to be alert to respond to the new challenges and opportunities. This

involves a continuous process of managing the change. The idea that the change is

essential, desirable and constructive within the established pattern of organization is

realistic. The view that the change has the beginning and an end is no longer tenable in this

continuum. Top management in its endeavor of reorienting the organization must recognize

the need and set the tone for a change. This kind of change compels either innovation or

improvement or both. In such an intricate situation many organizations tend to focus their

attention in identifying innovations rather than improvement. However, the latter is

considered to be more appropriate in accomplishing the task. Recently, a new concept

called Business Process Reengineering (BPR) has emerged as a conspicuous tool for

restructuring the organization. In fact, the process of reengineering not only fosters a

favorable climate supportive of desirable change but also improves the organization’s

probability of success

CHAPTER TITLE PAGE NO

ACKONWLEDGEMENT 1

ABSTRACT 2

LIST OF FIGURES 3

LIST OF TABLES 4

1 INTRODUCTION 01

1.1 INTRODUCTION 01

1.2 AIM OF THE PROJECT 01

1.3 SCOPE OF THE PROJECT 02

INTRODUCTION:

The business environment of the present day has become so complex that organisations

are necessarily to be alert to respond to the new challenges and opportunities. This

involves a continuous process of managing the change. The idea that the change is

essential, desirable and constructive within the established pattern of organisation is

realistic. The view that the change has the beginning and an end is no longer tenable in this

continuum. Top management in its endeavor of reorienting the organisation must

recognize the need and set the tone for a change. This kind of change compels either

innovation or improvement or both. In such an intricate situation many organisations tend to

focus their attention in identifying innovations rather than improvement. However, the latter

is considered to be more appropriate in accomplishing the task. Recently, a new concept

called Business Process Reengineering (BPR) has emerged as a conspicuous tool for

restructuring the organisation. In fact, the process of reengineering not only fosters a

favorable climate supportive of desirable change but also improves the organisations’

probability of success

What is reengineering:-

Re-engineering is the fundamental rethinking and redesign of business processes to

achieve dramatic improvements in critical, contemporary measures of performance, such

as cost, quality, service and speed.

Michael Hammer and James Champy

Re-engineering is a rapid and radical re-designing of processes, services, policies and the

organizational structure of an organization.

The purpose of reengineering is to make all processes the best possible.

It is an effort to enhance the administrative effectiveness and efficiency.

Reengineering is an effective tool for organizations striving to operate as effectively and

efficiently as possible

• Examination and modification of a system to reconstitute it in a new form

NEED FOR REENGINEERING – WHEN AND WHY SHOULD REENGINEER?

A business involves the interest of various stakeholder who either support it or contradict

it. The stake holder in the process of maximizing their wealth, try to get a leverage on every

possible front by rewarding the other Each interest group tries its level best to grab

maximum possible returns from the business.

A win-win situation cannot be expected to turn up every time although attempts are made

to bring such a situation about all the time. Inspite of being having a conservative approach

to cost control leads to the loss of a good opportunity for making future profit there might

be some uncertainty due to which promoters or the owners have to think for the

reengineering of all the strategies of the business.

The organization will have to use tactics in the short run and strategies in the long run to

manage its finances if the ultimate result is to be favourable.for this cost and benefits from

every corner must be looked into in the value chain of the organisation.For achieving such

a goal there must be a flexible approach for achieving the desired results, with sustainable

success .

For such a reason the organization should have to use the reengineering processing which

the organization creates the new innovative ides to redesign the processes of the

organization to get the objective.

Each organisation must determine itself when it is appropriate for them to reengineer.

Reengineering should be done only if it can help in achieving an enhanced strategic

position. Some strategic indicators that require reengineering include:

1. Realization that competitors will have advantage in cost, speed, flexibility,

quality or service

2. New vision or strategy: a need to build operational capabilities.

3. Need to reevaluate strategic options, enter new market or redefine

products/services.

4. Core operating processes are based on outdated assumptions/technologies

5. Strategic business objectives seem unreasonable.

6. Change in market place in the form of - Loss of market share

- New basis of competition/new competitors

- New regulations

- Shorter product life cycles

- New technologies in play.

So, if the company is at the cutting edge of an industry that has just undergone major

changes reengineering might not be appropriate. However, if the organisation operates with

old models instead of new technologies and

approaches used by others, reengineeing may be urgently needed. Even if technical

performance is adequate, other improvements may be needed

– such as training, organisational change, leadership development etc. In such

circumstances also reengineering is required.

Process of the reengineering:

First organization have to recognize the each and every steps of the organization

which had been taken earlier to get the objective but was not appropriate to achieve the

goal.

Second they will have to take some modification in the steps i.e process, technology

, structure and the strategy of the firm in order to constitute the organisation into the new

form.

MOTIVATION FOR REENGINEERING

The motivations for reengineering are many, including:

Reduce costs/expenses (the most cited business-driven reengineering project goal) Improve financial performance Reduce external competition pressure Reverse erosion of market share Respond to emerging market opportunities Improve customer satisfaction Enhance quality of products and services.

Basics of reengineering:

The business environment of the present day has become so complex that organisations

are necessarily to be alert to respond to the new challenges and opportunities. This

involves a continuous process of managing the change. The idea that the change is

essential, desirable and constructive within the

Established pattern of organisation is realistic. It is the examination and change (reform)

of five components of the business: that is,

1. Strategy

2. Processes

3. Technology

4. Organization 5. Culture

Change in strategy:

A strategy has to keep thinking innovatively as an old strategy would be known to be

unuseful. It will be necessary to formulate a new business formulae either they are new or

old ones with moderate variation. Strategy must have to think of the following innovative

concept or formulation:

1. Incremental cost-benefit analysis of every marginal change in the decision or

situation.

2. Costing of the product, brands, employees and the enterprise, for long-term

strategy formulation

3. Leveraging ‘sunk costs’ by innovatively using such costs or commitments in

future negotiation

4. To arrange for the discounted cash flow analysis of the alternate projects to be

supported by ‘multi-angle performance parameters’ so that the comprehensive

assessment of the decision is possible

5. ERP would be possible if ‘internal benchmarking of cost performance ‘is built up.

6. To make national costing for a true application of profit center concept is a must.

7. Combining ‘value chain analysis’ with ‘segmentel ROI’ and ‘enterprice portfolio

mix’ theories

8. Forming a ‘U’ curve relationship with both the vendors and dealers to create a

strategic base for a long-term, sustainable and profitable partnership.

9. Making ‘economic value added’ more meaningful.

10. Innovating network mix

Change in process:

Realise the potential of your Finance Department.  We can map out your processes

enabling us to find anything preventing your department from working to its full potential. 

We can streamline processes to improve the efficiency of your Finance department and

help the department become more than just an overhead in your profit and loss, but to start

adding value!  We can also help you develop controls and standards.

In the reengineering of an organization there is need to change the business

processes, which will improve the customer service quality, the product value, etc. It is

notable that redesigning the processes improve the working life of employees which

in turn lead to indirectly improved quality and responsiveness to customers.

To improve the cost, quality, service and speed, companies are developing new

processes to produce the results important to customer. They are looking for ways to

become more flexible and responsive Change in the processes causes success in many

organisations and has fueled the growth of the Business notables, for e.g.- Ford Motor

Company. Reengineering improved its invoice processing so that the process was

accomplished by 75% fewer people and more accurate financial information was produced.

- IBM Credit Corporation. A credit issuance process that used to take two weeks to

complete now takes only hours with a 100- fold increase in productivity

- Taco bell. They reconfigured their restaurants to increase peak capacity for a top unit from

$400 per hour to $1500 per hour. At the same time they lowered prices; their average

pricing today is about 25% less than nine years ago.

In short the change in the processes are designed to be simpler to those they

replace, several jobs might be combined into one and the number of checks and controls

reduced. In the right sense, more frequently, it is the result that work is performed where it

makes most sense, and workers can make more decisions themselves.

Change in technology :

In the process of reengineering of an organisation there is need to change the

technology if that are not providing a satisfactory performance to implemented such a

change new information technology (such as knowledge based, expert system and

sophisticated telecommunications equipment) is frequently employed in the design of

these processes.

The ultimate success of any activity expansion plan depends upon the quality of the

system-processess-equipment used at various level of functioning a perceptual and

automatic mechanism of technology review and upgradation should be an integrated part of

the organization culture

Technology refers to the core technical details of both the main assets

and operations because only high quality medical equipments do not make a hospital

successful, without efficient doctors and staff handling them with efficient system. therefore

technology refers to both core and support activities.

Changes in the technology basically refers to the following:

1. Technology upgradation collaboration: it refers to the innovative financial

instrument and technology leasing and subleasing

2. Collaboration for technology funding : it refers to the long term bonds

3. Technological consortium : it includes cost- benefit analysis of alternate

combination

4. In house R & D: it includes capital & revenue budgets

5. Employee training budget

Change in organization:

Transition is a time of "passage", when people are apt to carry around some of the

baggage of their past, as well as feel the first stirrings of their future. It is also a time when

employees have to face a number of challenges as old processes and ways of doing

business make way for the new.

Steps involved in the change of organisation:

1. Profiling the Existing Organization

2. Profiling the Future (Re-engineered) Organization

3. Analyzing the Gap

Results of the gap analysis should include the...

← Gap between current and future organization structure, gap between current and

future geographic locations, gap between current and future staff levels, staffing and

deployment requirements, potential workforce adjustment impacts, organizational

and employment adjustment, costs training and re-training requirements, career

development requirements backfill requirements and replacement costs target

groups and language requirements .

Change in Culture:

Change in culture provides a vehicle to open up communication and improve

management practices. It changes the way people work and can create an environment

that encourages innovation and change. It provides opportunities for employees to develop

and improve their client-oriented approach. Middle managers will be impacted as the role of

coach and facilitator takes on greater importance. This will in turn will improve client

service, practical and pragmatic business approach management style of openness and

consultation continuous learning organization employee participation and consultation client

and quality service oriented employees continuous performance measurement value-added

service and results orientation cross-functional integration

Business Process Reengineering:

DEFINITION :

The Business Process Reengineering is a complete life cycle approach. This

provides the scope for problem identification and also solutions to implement the successful

business operations. There are many new elements in BPR such as extensive use of IT

and new perspectives on organisational structure. There is also more about process

redesign, quality improvement and so on. It is a comprehensive method of assessing the

current business process planning and redesigning the methods and implementing them for

business solutions. Hence, the BPR is defined as “ The fundamental rethinking and radical

redesign of the business systems to achieve the dramatic improvements in critical and

contemporary areas such as cost, quality, service and speed.” It is a comprehensive and

complete method, addressing such activities of organizing the project, assessing the

current business process, designing the reengineered business process, and planning and

implementing the solution. The origin and scope of BPR is derived from the concept of

innovation. While the BPR recognises the process innovation, the innovation concept lays

more stress on the product innovation. But, the reengineering efforts on business

processes, which will improve the customer service quality, the product value, etc. It is

notable that redesigning the processes improve the working life of employees which in turn

lead to indirectly improved quality and responsiveness to customers. BPR is done for

various business reasons and those could be

• Poor financial performance:

In an organization if the performance of the various department is not upto the

satisfactory level i.e. if they are giving poor performance or not according to the expectation

of the organization then there would be a need to use the BPR process so that the

objective of the firm could be achieved.

• External competition:

If the strategy of the organization is providing such an output which is not up-to the mark

so that it can cope-up with the existing external competition provided by the competitor then

there would be a need to change the strategy so that it would be beneficial to stay in the

market with the appropriate benefit which would be best drien by the help of BPR .

• Erosion of market share:

One of the greatest threat for the organization is the erosion of the market shares

and if that happen than the firm will be in a great trouble and than would have to think of

how to rise the market shares .for that purpose the organization would have to use the

process of reengineering.

• Emerging market opportunities:

Every of the organization wants to get the opportunity Provided by the market so that it

would be beneficial to the organization to spread the way to get the maximum profit and to

satisfy the needs of the customer and it is not possible to get the market opportunity in the

best possible manner without the help of the business process reengineering.

Prerequisite essentials for Innovative Financial Engineering are :

• Needs strategic understanding of benchmarking

• Creative Thinking

• Courage to challenge the Traditional thinking

• Shrewdness to locate and discount individual interests of different stakeholders

• High ability to use business arithmetic and economical thinking together

• A strategic approach to combine the intellectual and the Emotional Quotient

• High ability to relate strategies, notional parameters and financial benchmarks in a

holistic manner

• Maturity in selecting the most reasonable solution to a given problem

• Ability to work at both the levels of analysis macro and micro

• Quick grasp of the end results

Various forms of Re-engineering

• Financial Re-structuring:

The cementing of products, system, people, brands and technology has

to be done with financial structuring, financial control system, financial benchmarking and

financial quantification of every qualitative business variable .such cementing is called

‘Financial Engineering’. And the process to change the financial strategy to reconstitute the

organization is known as the ‘Financial Reengineering’.

The fundamental rethinking and redesign of business processes to achieve dramatic

improvements in critical, contemporary measures of performance, such as cost, quality,

service and speed in financial aspects is known as financial restructuring

Corporate Re-structuring:

Corporate Re-structuring refers to the job-cuts, divisional closures, focus on core

competence, geographical concentration, product identification and strategic business

units etc. it also refers to the repositioning.

It basically deals with the redefining or researching of the purpose of doing business. It

may also be defined as the conscious effort to restructure policies, programmes,

products, processess and people.

Corporate re-structuring may be held in any of the following situations:

1. Mergers /Acquisitions:

when one company acquire or buy the majority share of the other company. That

company which acquire the share, is called as holding company and to whom the holding

company buy, is called as subsidiary company and all this procedure is called as

acquisition.

When two company have equally merge together and work out with each other having

the same objective, this is called as merger.

e.g. TATA has acquire the corus group plc(steel company) situated in U.K the deal

value was 12000 million dollar

2. Divestitures:

3. De-mergers:

Reengineering the Financial Platform

Summer 1998 - The timeshare industry, or as it is now referred to, the vacation

ownership industry, continues to be one of the hottest segments of the hospitality industry.

Almost every day, one of the major opportunity funds, Wall Street investment houses, or

major hotel companies is looking toward acquiring one of the timeshare companies. By

combining the existing infrastructure with high growth opportunities emanating out of their

deal pipelines, the companies hope to create a large synergistic component to their

hospitality offerings. Once acquired, these companies need to be able to transition from an

entrepreneurial structure to one with much stronger corporate disciplines.

Nowhere is this more important than in the financial components to the "new"

company business. Unfortunately, this is precisely where most vacation ownership

companies are deficient. Most developers are long on sales and marketing know-how, but

have always treated the financial systems as a corporate stepchild. Most bankers and other

financial players are amazed at the un sophistication and inaccuracies which occur as a

result of this underdeveloped corporate component. These deficiencies are manifested in

the inability to accurately report on the companies financial condition, and also are directly

responsible for millions of dollars in annual expenditures resulting from inefficiencies, in

both manpower and information systems.

Vacation Ownership - A Complex Business Model

Anyone who has engaged in or studied vacation ownership companies understands

that they are complex business models which are very capital - intensive in their early

years, yet throw off considerable cash in the later years. These companies initially start out

as real estate development companies; they have all of the depth of those organizations,

including feasibility, development and construction, design, etc.

Once the resorts are developed, the companies step into high gear and become

sales and marketing entities. Not only is this a complex area, but it represents the single

greatest corporate expenditure for the company. In order to properly evaluate programs,

the systems and financial tie - ins must be in place for management to make crucial day - to

- day decisions on marketing and lead generation programs. Such programs need to track

hundreds of  variables throughout the marketing and sales process. Once the properties

are sold, these organizations then need to handle the large amount of mortgages which are

generated  in the sales generated process.

This complex business environment requires sophisticated management and

information systems to not only keep track of the data. but to present it to management in

the most efficient and useful fashion. Reengineering the company is the way to accomplish

such a task.

Reengineering - The Critical Components

When refining processes, the working assumption is that the process is valuable and

only requires minor evolutionary changes to achieve peak efficiency. In the case of

reengineering, there is no such assumption. Reengineering involves a critical development

of the following key components:

Developing a Jointly Committed Team:

Consultants are an invaluable resource throughout the reengineering process, but

change won't become a permanent part of the client culture without a project sponsor,

employee consensus on the need for change, and involvement from all levels of the client

organization.

Strategy Assessment:

Process reengineering should be done with a contextual understanding of the client's

strategy and critical needs. Many vacation ownership companies are cash - constrained

due to timing differences among construction expenditures, commission payments, and

cash collections. Reducing mortgage banking cycle time is an effective way to improve the

velocity of the cash cycle.

Baseline Diagnosis:

An objective performance baseline serves several purposes: it identifies gaps

between current performance and best-in-class performance, pinpoints problem areas, and

helps build client consensus on the need for change. It also establishes cost, quality, and

cycle time targets for the reengineered processes.

Determining Scope and Priority:

When the strategy assessment and baseline diagnosis are completed the project team

selects and prioritizes the financial processes to be reengineered.

Process Design:

In this phase, the project team develops a future state design hypothesis based on best

practices from inside and outside the industry.

Impact Assessment / Implementation Planning:

Reengineering often entails radical organizational, skill set, process, and technological

change. Identifying the impact of chance on the client's organization and developing plans

to address potential resistance gives the change process a greater chance of success.

Implementation:

During implementation, the client must assume primary responsibility, with guidance from

the consultant. This institutionalizes the change process and empowers employees to seek

and drive future change opportunities.

Integrated financial systems such as SAP, Oracle, PeopleSoft, or Lawson play an important

role in the reengineering process. By replacing non-integrated legacy applications for

General Ledger, Purchase Order, A/P, Travel & Entertainment, Human Resources, Payroll,

and Inventory, companies can substantially reduce the time spent on manual journal

entries, intercompany accounting, accruals, closing, consolidation, and report generation.

Conclusions

The vacation ownership business today is rapidly becoming far more integrated into

traditional real estate, hospitality, and financial environments. New participants and industry

veterans are reaching the same conclusions regarding the complexity of the business and,

more importantly, the inefficiencies which abound. These inefficiencies are most apparent

initially in the finance and accounting areas of the vacation ownership organization.

Through self-diagnosis and candid assessments of the current position of the business, as

well as its strategic direction, management can assess whether the business is a suitable

candidate for reengineering of its finance function. Reengineering can lead to large - scale

improvements in the operations of a company, improving its overall cash positions, cycle

times, and productivity. All of this leads to substantial increases in profits in a high-growth

environment.

The most direct benefit that companies derive from reengineering is significant in the

process improvement (50 to 100%). Costs are lowered while speed, quality and service are

dramatically improved. Unfortunately, reengineering seldom makes a significant impact on

the organisation’s bottom line (only 20% of the time.) Reengineering has a greater chance

of success if it is viewed as leading to growth and value creation. In addition,there are costs

to reengineering that must be considered before deciding for such a right strategy for an

organisation. Wayne Code, President of Vallen Inc. explains, “These changes may be

traumatic, but the pain is outweighed by the gains made in the move towards the significant

goals set. Change occurs when the pain of change is less than the pain of staying the

same.”

CASE STUDY

LG Case StudyBackgroundLG, formerly known as Lawrence Graham, is a London-based business law firm with a global reach. It principally acts for UK and international public and private companies, pension funds, financial institutions, public authorities, shipping companies, small businesses and private individuals. The firm's business is divided into four principal practice areas: business and finance; real estate; dispute resolution; tax and private capital. As a firm, it prides itself on being ahead of the game and providing clients with relevant news and updates on changes in the law.RequirementIn the summer of 2006, LG began to review how it communicated both internally and externally. LG is driven by its commitment to the environment and introducing ‘green’ work practices.  What was evident in 2006 was that all communication was conducted through hard copy; this could vary from mail drops on employee’s desks to the sending out of annual reports and white papers to clients. Although the type of communication was diverse, the common denominator was that everything was paper-based. It was clear that this needed to change.Technology now allowed LG to disseminate information electronically and vastly reduce its dependence on paper. Naturally, this was no small undertaking as it required many lawyers to change the way they had historically worked. So, in terms of a new approach to delivering content it had to be fairly easy to use, demonstrate that it was more effective than previous channels and gain firm-wide acceptance.

Nicole Hunter, Business Development Executive, at LG said: “We were essentially looking for a solution which would save us time and money and allow us to communicate with our clients quickly and effectively. We were far too reliant on hard copies and as our culture is very green, a digital solution seemed the most appropriate way forward."

The SolutionAfter talking to a number of digital providers, LG decided to partner with Concep to develop an online marketing strategy. Concep Campaigner was chosen as the solution for delivering the digital communications programme. From the outset, it became clear that Concep Campaigner would be integral to LG’s future marketing programme, and would be used for sending out white papers, reports and information on legislative changes and invites to seminars, breakfast forums and parties.The decision to work with Concep was timely as LG was also in the process of a re-branding. Therefore, the firm benefited from Concep’s design consultancy in relation to the creation of new email templates and the requirement for brand consistency across all external and internal communication. 

Hunter continued:  “As you would expect this type of technology is new to a lot of people and there is always a degree of cynicism when you try to introduce new working procedures. However, we have found that once lawyers have used Campaigner, understood it, and seen the practical benefits it brings, they become advocates and in fact want to use it whenever possible. Across the firm, the response has been very positive and in general our communication is now far more pertinent and efficient.”

ResultsSince November 2007, LG has saved over £15,000 though the online distribution of newsletters, hot topics and seminar invitations. In addition, through the use of Concep Campaigner, LG can now measure the effectiveness of each campaign. For the first time it has access to a reporting functionality. The analytical abilities of Concep Campaigner provides information on delivery and click-through rates which allows LG to understand the success of each campaign and cleanse their data i.e. what email addresses no longer function, people moving jobs, etc.

Due to the success of using Concep Campaigner in 2006/07, LG has doubled the number of Campaigner email subscriptions from 50,000 to 100,000 in 2007/08. The desire to increase its bandwidth reflects how central the solution has become to LG’s communication strategy.

This year LG has also decided to use Concep Event as the platform for its annual Insolvency conference which is scheduled to take place on 10 November, 2008. Believed to be the biggest event of its type in Europe, with over 500 attendees, this will be the first time the conference logistics will be managed online; from a ‘save the date’ campaign, to attendee registration to the distribution of information packs. Ultimately, the decision to use Concep Event will reduce the amount of paper used and save the firm thousands of pounds in print costs.

Moreover, Concep Campaigner integrates seamlessly with Concep Event, so that when a client or prospect receives an invitation via an email he or she is transferred directly to a registration area.

In addition, LG became the first UK law firm to integrate its own CRM system with Concep’s solutions; ensuring that if a recipient updates their contact details via a mailer, the new information will automatically be transferred to LexisNexis InterAction.

Hunter concluded:  “Through working with Concep we have changed the way we deliver our marketing campaigns. We now have far more insight into their effectiveness and are able to provide clients with information in a format they are more comfortable with. In addition, we have reduced our environmental impact, which is very important to our firm ethos.”