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Business Process Reengineering:
Analysis and Recommendations
By
Maureen Weicher
William W. Chu
Wan Ching Lin
Van Le
Dominic Yu
Thanks to Dr. Samuel Ryan of Baruch College, City
University of New York.
This paper was written by a group of MBA and MS students at Baruch College. May be freely quoted as long as credit is given.
Also available in PDF format. Please email questions or comments
to Maureen Weicher at maureenw#rcn.com
(anit-spam measure: change # to @).
Introduction Old Wine in New Bottles?
Is BPR a Quick Fix? The Price of Experience
The Role of the Leader and Manager
Reengineering the Human Resource
Human Reengineering Case Study: The
Conquering Power of the Small BPR Places the Customer at the
Center by Breaking Down Organizational Barriers Is Information Technology an
Enabler or a Bottleneck? Alternatives to Reengineering
Reengineering Recommendations
Bibliography
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.
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 Taylor's time, technology
did not allow large companies to design processes in a cross-
functional or cross-departmental manner.
Specialization was the state-of-the-art method to improve
efficiency given the technology of the time. [17]
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] Davenport
suggests that the engineering model/analogy that BPR is
based upon is flawed, both in terms of process design and
information technology. He proposes an "ethnographic"
approach to process design and an "ecological" approach to
information systems. Partipative business makeovers are
discussed later in this paper.
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]
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]
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.
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 Tallahassee, Florida. When the
founder died suddenly, the company was appeared to be in desperate need of reengineering: GTO was losing money on a
monthly basis, it lacked a line of credit and suppliers
shipped only on a COD basis. Employees were required to work twenty-four
hour shifts to fill important orders and salesmen
were reduced to writing minuscule orders to supplement
their incomes. The new CEO, Chuck Mitchell, adopted "...a
strategy made up of small gestures rather than sweeping
moves." [11] These gestures consisted of creating an
atmosphere of trust and optimism among GTO's harried employees by listening to and adopting their suggestions and
improving their health and disability insurance. When
things started to turn around, pay was increased and bonuses
distributed from a profit sharing plan. The
salesman were put on salary with incentives. Acts such as
fixing the leaky roof, allowing ten minute breaks, and
keeping the coffee machine stocked convinced the employees
that Mitchell was "genuine." The following year, GTO
witnessed a cultural and company turnaround. Net profits
moved from the red to nearly $500,000. This was
accomplished by a 9% increase in gross sales along with a
33% decrease in total operating and administrative costs.
Employee turnover decreased equally dramatically. As
employees began to seek outside education and were promoted from
within, the number of returned goods fell. [11]
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.
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]
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. Aetna tried to combat this
"disengagement" by presenting workshops on client businesses to
the IT group. [4]
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:
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Recognize that IT is only part of the solution: it
allows managers to collect, store, analyze, and communicate and
distribute information better.
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Cut and paste the IT tools needed.
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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]
Davenport proposes an "ecological" model when
redesigning information systems. Up to the present, the
dominant model of IT has been "that data streams can be
deigned
architecturally and engineered...[This] approach involves
detailed modeling of information requirements and flows, and their
relation to business activities and processes." [5]
The traditional approach runs into difficulties when
confronting environments that are fluid, dynamic, or
characterized by dissent. Davenport argues that the basis
of IT redesign must be the individual who uses the
information. Data turns into information when it is placed in a
human, behavioral context.
"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.
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. Davenport proposes that the BPR team be split
into two parts, a design team made up of senior
mangers, and an execution team composed of people who will
actually do the work. While Hammer and Champy specifically warn
against spending too much time studying the current
process, this method advocates an "ethnographic" approach
where the designer studies and participates in the process
to be redesigned. This provides a deeper understanding of
the process and demonstrates the team's commitment to the
workers. The team must be willing to sell a new process as
though it were a process, expect and tolerate modifications to the
process, and change the reward system to motivate
change. [5]
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, Britain's
manufacturing output (the numerator) increased about ten
percent between 1969 and 1991, while the number of employees (the
denominator) was cut in half. Although productivity
skyrocketed, Britain surrendered global market share. "One
almost expected to pick up the Financial Times and find that
Britain had finally matched Japan's manufacturing
productivity -- and the last remaining person at work in
British manufacturing was the most productive son of a gun
on the planet." [1]
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 U.S., along with the
rest of the world, has had to reassess the idea of
competitive advantage. The idea that competitive advantage lies in
a nation's natural resources has been abandoned.
BPR, if left unchecked, seems to offer the dismal prospect
that competitive advantage lies in constant cost
minimization. Foreward looking thinkers propose that competitive advantage for the new century lies in a nation's workforce and
infrastructure, and the ability to create and
deliver new products and services in the global marketplace.
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BPR must be accompanied by strategic planning, which
addresses leveraging IT as a competitive tool.
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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.
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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.
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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 Bibliography
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Chew, Angie, How Insurance Firms Can Reengineer for Success,
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Cone, Edward, Technology Chief of the Year; All the Right
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