Business
Process Reengineering:
Analysis and Recommendations
By
Maureen Weicher
William
Wan Ching Lin
Van Le
Dominic Yu
Thanks to Dr.
Samuel Ryan of
1.
Introduction
2. Old Wine in New Bottles?
3. Is BPR a Quick Fix?
4. The Price of Experience
5. The Role of the Leader and Manager
6. Reengineering the Human Resource
7. Human Reengineering Case Study: The Conquering
Power of the Small
8. BPR Places the Customer at the Center by
Breaking Down Organizational Barriers
9. Is Information Technology an Enabler or a
Bottleneck?
10. Alternatives to Reengineering
11. Reengineering Recommendations
12. Bibliography
Introduction
The
"jumping off" point for this paper is Reengineering the Corporation
by Michael Hammer and James Champy. The paper goes on
to review the literature on BPR. It explores the principles and assumptions
behind reengineering, looks for common factors behind its successes or
failures, examines case studies, and presents alternatives to
"classical" reengineering theory. The paper pays particular attention
to the role of information technology in BPR. In conclusion, the paper offers
some specific recommendations regarding reengineering.
Old
Wine in New Bottles
The concept
of reengineering traces its origins back to management theories developed as
early as the nineteenth century. The purpose of reengineering is to "make
all your processes the best-in-class." Frederick Taylor suggested in the
1880's that managers could discover the best processes for performing work and
reengineer them to optimize productivity. BPR echoes the classical belief that
there is one best way to conduct tasks. In
In the early
1900's, Henri Fayol originated the concept of
reengineering: "To conduct the undertaking toward its objectives by
seeking to derive optimum advantage from all available resources." [17] Although the
technological resources of our era have changed, the concept still holds. About
the same time, another business engineer, Lyndall Urwick stated "It is not enough to hold people accountable
for certain activities, it is also essential to delegate to them the necessary
authority to discharge that responsibility." [17] This admonition
foreshadows the idea of worker empowerment which is central to reengineering.
Although
Hammer and Champy declare that classical organization
theory is obsolete, classical ideas such as division of labor have had an
enduring power and applicability that reengineering has so far failed to
demonstrate. BPR does not appear to qualify as a scientific theory, because,
among other things, it is not duplicable and it has limited scope. The
applicability of classical management theories, such as division of labor, were widely duplicable and portable. These ideas stimulated
increases in productivity, output, and income that led to the creation of the
middle class.
If BPR is not
a theory, but a technique, Hammer and Champy are
surprisingly vague about the details. This paper attempts to fill in the
blanks. Despite their vagueness, Hammer and Champy
are clear about who to blame when reengineering attempts fail; it is the fault
of the individual company.
Cyert and March,
among others, point out that conflict is often a driving force in
organizational behavior. BPR claims to stress teamwork, yet paradoxically, it
must be "driven" by a leader who is prepared to be ruthless. One
executive with BPR experience warns not to assume "you can simply issue
directives from the center and expect it to happen." [4]
According to
Thomas Davenport, "classical reengineering" repeats the same mistakes
as the classical approach to management by separating the design of work from
its execution. Typically, a small reengineering team, often from outside the
company, designs work for the many. The team is fueled by assumptions such as
"There is one best way to organize work; I can easily understand how you
do your work today; I can design your work better than you can; There is little
about your work now that is worth saving; You will do your work the way I
specify." [5]
IS BPR
a Quick Fix?
BPR is often
used by companies on the brink of disaster to cut costs and return to
profitability. The danger is that during this process the company may slash its
capacity for future growth. The example of "Star Vault, Inc.", a
mid-sized entertainment company illustrates this conundrum. [1] After BPR, Star Vault
returned to short-term profitability by sacrificing its internal production
capability to create new products.
Senior
management soon discovered that the company's library was becoming overexposed
and competition for the most attractive product acquisitions more intense. Star
Vault was forced to reevaluate its strategic direction. It opted to focus on
niche markets. "Instead of simply improving the processes, the company
eliminated non-value- added expenses, and evaluated which organizational
elements were relevant to the strategy... As a result, the company now has the
opportunity to sustain and increase its market share." [1]
To reap
lasting benefits, companies must be willing to examine how strategy and
reengineering complement each other -- by learning to quantify strategy (in
terms of cost, milestones, timetables); by accepting ownership of the strategy
throughout the organization; by assessing the organizations current
capabilities and processes realistically; and by linking strategy to the
budgeting process. Otherwise BPR is only a short term efficiency exercise. [1]
One of the
hazards of BPR is that the company becomes so wrapped up in "fighting its
own demons" that it fails to keep up with its competitors in offering new
products or services. While American Express tackled a comprehensive
reengineering of the credit card business, MasterCard and Visa introduced a new
product -- the corporate procurement card. American Express lagged a full year
behind before offering its customers the same service. [3] Another writer urges
consultants not to present BPR as a quick fix program since it "may help
you save money tomorrow but will leave you in a worse position next month or
next year." [16]
The
Price of Experience
Why are so
many companies still eager to experiment with reengineering, even when they
have experienced previous failures themselves? Companies such as American
Express and Amoco were able to learn from earlier reengineering failures, and
succeed on later attempts. It seems that "experience, more than the
possession of the right approach or methodology, is the key to reengineering
triumph." [3]
This acknowledgement may help explain the increasing interest in reengineering,
despite the high failure rate.
Wheatley, on
the other hand, describes the appeal of reengineering as a sign of
"collective desperation." She notes "when a star is in its death
stage, about to collapse on itself, it burns at its brightest, with tremendous
energy and fury. Reengineering is the supernova of our old approaches to
organizational change, the last gasp of efforts that have consistently
failed." [2]
The
Role of the Leader and the Manager
Many articles
point out that BPR must have the full support of top management to succeed. If
resistance is encountered, the leader must be willing to "drive"
change, even to the point of ruthlessness. One article even exhorts the leader
to emulate a private detective -- such as Philip Marlowe -- who adheres to the
following "heroic" qualities; Relentless adherence to what is right;
Courage -- moral as well as physical; Recognition that surface appearance is
often an illusion; A dogged determination to get at the deeper truth. [10] Managers in a
company undergoing reorganization must work to quell the fears of employees and
resistance to change (despite the fact that they may have their own
apprehensions.)
According to
one executive with BPR experience, "Once the [reengineering] plan is in
place, you've got to pull out the stops and execute it. You cannot live in
limbo between what you used to do and what you're going to do." Otherwise,
the dramatic results are sacrificed, people lose their
focus, and "reengineering slips into process improvement." [4] Employees may be
enthusiastic about reengineering during the initial phases if they view it as a
"win- win" situation. Some companies experience resistance in later
stages when employees begin to harbor doubts about the impact of reengineering,
and managers are forced to adopt a more "insistent" policy. [4]
CSC Index
points to poverty of ambition as a reason why BPR projects fail.
"Companies that just flirt with [reengineering] suffer the pains without
the gains." [6]
Reengineering advocates urge management to pull out all the stops and implement
change on a grand scale. Managers in the organizations after reengineering are
compared to coaches. They do not order; they guide. They do not direct the work
of others; they coordinate, facilitate and empower.
Reengineering
the Human Resource
Hammer and Champy recognize the importance of the human resource when
they state "companies are not asset portfolios, but people working together
to invent, sell and provide service." [9] However, they fail to
demonstrate how to reengineer the human resource in conjunction with
reengineering processes. Of the four cases presented in Reengineering the
Corporation, only the case of Capital Holding addresses this area. Capital
Holding performed a "cultural audit" which revealed that the
unwritten code of conduct encouraged information hoarding and barely
acknowledged the customer. In order to combat these tendencies, senior
management provided a constant flow of information throughout the company
regarding reengineering expectations and successes, and revised the performance
appraisal system to emphasize the new values of team work and cooperation.
Although
Hammer and Champy provide a long list of why
reengineering fails, nowhere do they include the prerequisite that no
reengineering effort will succeed without first reeducating and retraining the
people who will ultimately work with the new process. According to Meg
Wheatley, "If you're going to move information and responsibility down to
the local level, then the key question is how can you be sure that people will
behave appropriately? You need to make sure that everyone is playing by the
same rule book." [2]
CSC Index
identifies principle obstacles to BPR include the fear among employees that
their jobs are endangered and that years of experience will account for
nothing. To overcome these apprehensions, managers must constantly communicate
their plans and expectations. [6]
Although
companies which are seeking to reengineer may work on revamping the performance
appraisal system to support new values, this can be problematic. When bonuses
are linked to profits or even the performance of a team, this may lead to a
situation where the individual is judged on factors beyond his or her control.
Human Reengineering Case
Study: The Conquering Power of the Small
GTO Inc. is a
small company which manufactures automatic gate openers based in
GTO's dramatic
turnaround was a result of many small steps which could be said to foster
precisely the "culture of incrementalism"
that Hammer and Champy warn against. The focus was on
human resources rather than on processes.
BPR
Places the Customer at the Center by Breaking Down Organizational Barriers
Service
organizations can put their professed commitment to customer satisfaction into
action by placing the customer at the center of the reengineering process.
Service workers are often unable to satisfy the customer because they must
follow strictly defined rules, and they lack the authority to make exceptions
or the resources to complete a transaction.
Robert Janson points to three basic principle
that provide the foundation for service organizations seeking to reengineer:
Make
the customer the starting point for change -- by identifying customer wants and
creating the infrastructure to support these expectations
Design
work processes in light of organizational goals
Restructure
to support front-line performance. [12]
When IBM
started reengineering in 1992, the guiding principle was to become more
customer-centered. Twelve customer relationship processes were identified and
used as a basis for the reengineering project. One example is "solutions
delivery": a contract between IBM and the customer for a complete IT system,
including hardware, software, technical support, consulting services and third
party products. The redesigned process moved the responsibility for pricing to
the case team, who used "pricing tool" software. This eliminated a
nearly two month delay that formerly occurred when pricing was referred to IBM
headquarters. [13]
Is
Information Technology an Enabler or a Bottleneck?
According to
a roundtable of executives with extensive BPR experience, although information
technology plays a central role in reengineering, the IT department in many
companies is "unable to play." This ineffectualness may be due to the
historic inability of IT to do "anything big quickly", the "breeding
out" of risk-taking, or the lack of advanced technology groups. [4]
Another
danger is that, since the IT group is not perceived as being part of the
business process, they are excluded from the reengineering team.
Senior
management may be skeptical about the effectiveness of IT as a whole due to the
"lackluster" performance of many information systems in the past
decades. In fact, it can be argued that the huge investment in IT has had
little impact on productivity. Although 85% of IT spending in the 1980's was in
the service sector, productivity in this sector increased only 1.9%, while
productivity in the manufacturing sector rose 44%. [15] Based on this
record, it is not unreasonable to view IT as a disabler, which is never used to
"challenge why things are done in a company, but instead justify the way
they are done." Systems in the service sector have been used to generate
more unneeded reports, speed up superfluous work steps, generate unnecessary
information, encourage shoddy thinking and misdirect attention to spurious
details. [15]
One
(anonymous) company failed repeatedly to reengineer because it "spent a
lot of time building castles in the air regarding process redesign without
paying attention to information technology." [3] On the other hand,
Ontario Hydro found that the greatest improvement came when they gave the IT
group "the tools, the information, and the authority" to implement
change, rather than by core process reengineering. The IT group was able to
implement client server applications relatively early -- because individuals
took "ownership, responsibility and accountability without [the company] even
asking for it." [4]
Most analysts
view reengineering and information technology as irrevocably linked. Walmart, for example, would not have been able to
reengineer the processes used to procure and distribute mass-market retail
goods without IT. Ford was able to decrease its headcount in the procurement
department by 75% by using IT in conjunction with BPR, in another well known
example.
Despite
studies that indicate over half of all reengineering efforts are initiated
"because of a perceived information technology opportunity...the actual
technological solution is far less important than educating employees to use IT
as both a strategic initiative and as a tool in the reengineering
process." [4]
Based on the
above findings, some insist that when developing a reengineering strategy, the
best companies "ignore information technology." Only after the
strategy is complete should innovative IT applications be benchmarked, since
innovative applications often "stem from a combination of breakthrough
ideas and from modifying several best practices." [7]
IT can prove
useful during the reengineering analysis and design process. Graphics software
and CASE tools can produce process maps; spreadsheets and costing software
allow for activity-based cost analysis; databases can track customer
satisfaction and complaints; "blind" e- mail bulletin boards can be used
to capture employee suggestions. In addition e-mail and groupware can
facilitate communication and coordination across geographical and
organizational barriers. [7]
During the
implementation stage, it is recommended that companies follow these basic
rules:
Recognize
that IT is only part of the solution: it allows managers to collect, store,
analyze, and communicate and distribute information better.
Cut
and paste the IT tools needed.
Bring
in internal or external IT experts: their knowledge, skills, acumen, and
experience are invaluable.
After
implementation, continually monitor IT performance and keep up with new IT
developments. [7]
On the other
hand, some companies have found it useful to design a technology strategy
before reengineering. When Star Maker Inc., an entertainment/communications
company experienced a downturn, the CIO of the company convinced senior
management to make addressing the role of IT the first item on the agenda. Star
Maker designed a plan to use technology to place the company in the forefront
of the industry, with services such as electronic product catalogues, customer
interface standards, sophisticated electronic data links, customer and market
databases, and digital video. The new technology needed to drive growth was
then paid for by the cost savings from BPR. [1]
"Like
the more familiar form of ecology, [information ecology] involves establishing
a context for analysis, an understanding of the interrelatedness of a number of
different factors, the need for acute observation and description (instead of
modeling and prediction),the valuing of diversity, and the recognition of
continual flux and evolution." [5]
Wheatley also
expresses misgivings about the dominant scientific model for IT. She suggests
that the natural sciences may be a more appropriate model. She describes
organizations as "living systems" which, in order to be healthy, need
"access to its own intelligence ... where conditions support the use of
that intelligence." She points to the example of the U.S. Army, which is
"intent on moving information everywhere in their organizations without
knowing ahead of time who will need what." [2]
The
"democratization" of IT from the mainframe to the PC is
"breaking down the communications barriers between corporate functions,
suppliers, and even customers." [7] The distruptive power of IT allows information to be at many
places at the same time -- which allows companies to reap the benefits of both
centralization and decentralization - and is at the heart of BPR.
Alternatives
to BPR
Reengineering
focuses on changing existing business practices. This "impairs the entire
reengineering process, as it stifles innovation in finding new ways to
compete." BPR falls short when dealing with new products or services,
since "any strategic objectives achieved are simply the by- product of
improved productivity." [15]
Strategic reengineering addresses this shortcoming by focusing on designing the
organization to compete. This is accomplished by undertaking strategic
initiatives at the start of the reengineering process. These initiatives seek
to provide understanding of the markets, competitors, and the position of the
organization within the industry. Critical success factors required to compete
are identified and prioritized. Only then are
individual business processes addressed. [15]
Participative
business makeovers reject the "top- down" approach to reengineering
in favor of a middle ground, where the managers and workers come together to
redesign business processes.
Critics of
BPR argue that it is often used as a euphemism for "denominator
reduction." One may view productivity as a function of revenue or sales
divided by the number of people required to generate the revenue. BPR increases
productivity by cutting costs but does nothing to increase the revenues or
sales. BPR is often undertaken by firms "playing catch up" to avoid
disaster, but it does nothing to "regenerate core strategies," which
can lead to a real growth in revenues. [9] For example,
Other critics
warn that although BPR may lead to a competitive advantage, it is destined to
be short- lived. When one company lowers its costs of doing business, other
companies will immediately follow, and the competitive advantage is lost. One
writer warns that the reason why reengineers are so dangerous is that, due to
the obsession with bench-marking, "all firms in an industry start
converging on a point of no difference and thus of no profit." [14]
During the
past decades the
Reengineering
Recommendations
BPR
must be accompanied by strategic planning, which addresses leveraging IT as a
competitive tool.
Place
the customer at the center of the reengineering effort -- concentrate on
reengineering fragmented processes that lead to delays or other negative
impacts on customer service.
BPR
must be "owned" throughout the organization, not driven by a group of
outside consultants.
Case
teams must be comprised of both managers as well as those will actually do the
work.
The
IT group should be an integral part of the reengineering team from the start.
BPR
must be sponsored by top executives, who are not about to leave or retire.
BPR
projects must have a timetable, ideally between three to six months, so that
the organization is not in a state of "limbo".
BPR
must not ignore corporate culture and must emphasize constant communication and
feedback.
Reengineering
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