HUMAN RESOURCE DECISIONS 147
A parallel concern has been withbusiness process re-engineering(BPR), a term
coined by Hammer and Champy (1993) and which they defined as:
the fundamental rethinking and radical design of business processes to
achieve dramatic improvements in critical, contemporary measures of per-
formance, such as cost, quality, service, and speed. (p. 32)The recognition by both ABC and BPR is that business processes flow through
the organization (i.e. horizontally) and are not confined to hierarchical depart-
ments (i.e. vertically). This is not a dissimilar concept to Porter’s value chain (see
Chapter 9), where activities do not follow the route of the typical business organi-
zation chart. However, accounting reports are typically structured in accordance
with the organizational chart, either on a functional basis (marketing, operations,
finance etc.) or on a divisionalized basis (by product/service, geographic unit etc.,
as described in Chapter 2). The lack of cost information in relation to business
processes is a limitation of traditional accounting systems.
Two examples, one from manufacturing and one from financial services, help
to understand the importance of BPR and ABC as tools that can aid in human
resource decision-making.
Example 1: manufacturing
Purchasing in a manufacturing business is aprocessthat is not confined to a
centralized purchasing department. The process begins with the identification of
the need to order raw materials. A requisition may be raised in a production
department, is approved and is submitted to a purchasing department that will
have an approved list of suppliers and negotiated prices. A purchase order will
be created and sent to the supplier. The process continues when the goods are
received in the store, signed for and placed in a storage area. The paperwork is sent
to the accounting department where the supplier’s delivery note, the purchase
order and the goods receipt record are matched to await the supplier invoice. The
invoice prices and quantities are checked and a cheque will be issued.
In this example, purchasing is a cross-functional process that affects the per-
sonnel in many departments. However, a traditional accounting system arranged
around hierarchical departments and line items (e.g. salaries) will not recognize
thetotalcost of the purchasing process. Building on the principles of BPR, an ABC
accounting system will collect and report the total process cost. This can lead to
improved management decisions.
In the motor vehicle industry, an understanding of cost drivers has led to
the recognition that the number of suppliers and the number of parts had to be
rationalized. It has also led to the adoption of designs that more frequently use
common parts between different models (a recognition of the importance of the
product design phase, see Chapter 9). This is a more sophisticated method of
driving down purchasing costs than the conventional approach of reducing the
personnel headcount while leaving business processes unchanged, resulting in an
increased workload for the remaining personnel.