October 29, 2007

OM Lesson 1

The process chosen for the following question is the process of the reembursement of travel related cost at IBM. At IBM, all employees pay travel costs by a credit card of their own. The credit card is not charged to IBM but to the personal bank accounts of the employee. The employee documents all travel related costs in a computer system called "expense reembursement", which is an internal application in the IBM intranet. The manager has to approve the costs. In the same time, the employee sends all reciepts to a central reembursement desk, who checks the reciepts and initiate the payments.

Question 1: What is the strategic role of the process in the organization?

IBM needs traveling employees to fulfill customer requirements. So the first role of the process is to enable the employees to allow traveling as fast and flexible as possible. IBM decided, that it is more efficient, if employees spend travel related costs in the same way as on private occasions, but to allow them to charge the business related travel costs to IBM.

On the other hand, IBM needs to control travel costs. The overall travel costs in Germany are a major part of the total costs of the company. In order to keep the costs in control, it is necessary to enforce taht only business related travel costs are charged via the expanse reembursement system. Additionally, IBM needs to enforce the use of the most efficient way of travelling, e.g. the use of hotels with special IBM discounts, the use of low cost airlines etc.

The last role of the process is the documentation of the travel costs. The costs have to be documented for accounting and all the legal standards (e.g. tax laws) need to be applied.

Question 2: Process goals

Designing the process, the following process goals have been important:

Quality - Every travel consists of several individual reciepts. Their are plane tickets, hotel, taxi, bus, allowances for meals etc. Because of the fact that all costs of the travel are charged to the personal bank account of employees, failures in the process can quickly lead to problems, e.g. blocked bank accounts because of overdrawings, if plane tickets are lost. Further: The process must document all travel charges completely. It must be possible to review or audit all travels. The process must be transparent for employees and managers.

Speed - The privat credit card of the employees charges the credit within an average of four weeks. The process must guarantee an embursement inside this timeframe in order to avoid interest costs for the employees and the company.

Dependability - The employee must be able to rely on the speed and properness of the process. If the employee pay travel costs themselves, they feel like giving the company a credt. They only will do that, if they can trust the reembursement process.

Flexibility - While the goals above are fulfilled by a computer application best, the goal of flexiblity is more difficult to fulfill. In general, reembursement of travel costs is a standard process. But their are some deviatons to standards, e.g. in case of special occurances during the travel. One example: A hotel with a special IBM discount is present in the target location, but no rooms are available. In this case the employee needs to charge a higher hotel rate, even if it is against the formal rules of the process not to allow more expensive hotel rates.

Costs - The process does not generate any revenue for IBM. So the goal is to perform the process at the cost minimum.

Question 3: Strategic decisions

Do we do things ourselves or outsource? Travel is not are core competency of IBM. While the approvement of the travel itself must be done by the IBM manager of the employee, the reembursement desk is run by a company specialized in these services. To summarize: The reembursement service is a commodity service, that is not strategic.

What technologies should we use? The main process goals regarding quality can be fulfilled by an electronic application only, because a lot of data has to be managed efficiently and documented completely. On the other hand, checking reciepts and judging the justification of charging costs to the company is a manual process. So automatic applications and manual process steps have to be included into one process.

How do we maesure operations performance? The following parameters are important for the maesurement of the performance: Average speed of the reemburesemt, average failure rate (measured by rate of complaints or repeated actions to one travel reembursement), average cost per reembursement, customer satisfaction (measured by employee surveys), audit comliance.


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