MB 10 – 02 : BUSINESS PROCESS RE-ENGINEERING

1. What are the realities of today’s business environment that are forcing a revolution in management practices?

The reality that organizations have to confront is that the old ways of doing business, the division of labour around which companies has organized after Adam Smith principles do not work anymore. In today’s environment, nothing is constant or predictable including market growth, customer demand, product life cycle, the rate and direction of technological change, or the nature of competition.

(a) Changing Customer Trends

Today’s business organization of any size and type, in any industry, is inflexible and unresponsive to customer needs. Customers now tell suppliers what they want, when they want it, how they want it, and what they will pay. Individual customers expect products that are configured to their needs, and payment terms that are convenient for them. On the supply side of the equation, more producers now operate around the world, for the share of their markets. This has made consumers choose what they consider as value amongst the different options available.

(b) Intensifying Competition

The company that could get to market with an acceptable product or service at the best price would get a sale. And moreover, not only competition exists; it is manifesting itself in many ways. Niche competitors have changed the face of many markets. Similar goods sell in different markets on different competitive bases: price, customization, and flexibility, quality and technology, service, and more crucially time. All companies are taking on their competitors by underplaying them on the above dimensions.

(c) Companies always in Transition and Change

Change has become both pervasive and persistent in the environment. The pace of change has accelerated. With globalization of the economy, companies face a greater number of competitors, each one of which may introduce product and service innovation to the market. The rapidity and the direction of technological changes also promote innovation. The changes that will put a company out of business are those that happen outside the light of its current expectations, and that is the source of most change in today’s business environment.

2A. What are the changes that accompany a re-engineering exercise in a company?

Every aspect of organization changes when a company re-engineers. These changes are discussed below: -

(a) Change in Work Units

Work units change from functional departments to process teams. Once a company restructures, process teams, the groups of people working together to perform an entire process turn out to be logical way to organize the people who perform the work. These process teams do not contain representatives from all the functional departments involved rather the process teams do not contain representatives from all functional departments involved rather the process teams replace the old structure. Consider the progress of an order or a new product idea through an organization. People who are scattered in different departments, groups, and divisions handle each of these items. An alternative approach is to put the people involved together in a team. A process team is a unit that naturally falls together to complete a whole piece of work, a process. There are various kinds of process teams. A case team consists of number of people with different skills working together to complete a routine, recurring work. Another kind of a process team that has a shorter life span is known as a virtual team. This kind of a process team befits for example, new product development process. People may simultaneously be members of more than one virtual team, splitting their time among different projects. Another variation of a case team is when the ‘team’ consists of only one person. This type was the result of processes where people in the various departments passed the work back and forth among themselves, with all the usual errors and delays. When the company re-engineered, only one person was made responsible for the whole process by replacing the various departments into one.

(b) Change in Jobs

Jobs change from simple tasks to multi-dimensional work. People working on process teams will find their work far different from the jobs, which they have been accustomed. Process team workers, share joint responsibility with their team members for process results rather than individually responsible for tasks. They not only use a broader range of skills, but also have to thinking of a far bigger picture or the ultimate goal of the process. For example, in the design of a camera, a lens designer who used to concentrate strictly and narrowly on lens design now designs lenses in the context of the camera as a whole. Thus the lens design will be influenced by other process members’ decisions.

Workers in re-engineered processes spend more time on value-adding work and less time on work that adds no value, their contributions to the company increase. There are challenges as well about work in a re-engineered environment, as much of the old routine work is either eliminated or automated.

(c) Change in People’s Roles

People’s roles change from controlled to empowered. As the management invests teams with the responsibility of completing an entire process, it must also give them the authority to make the decision needed to get it accomplished. Thus people working in a re-engineered process are, of necessity, empowered. As process team workers they are both permitted and required to think, interact, use judgment, and make decisions. They should, within the boundaries of their obligations to the organization decide how and when work is going to be accomplished.

Also companies that re-engineer must consider additional criteria in their hiring. They need to look beyond education, training, and skills of their prospective employees. They also need to consider their attitudes, self-discipline, character and the level of motivation.

(d) Change in Job Preparation

Job preparation changes from training to education. Re-engineered processes require that people exercise judgment in order to do accomplish the process. This means they need education. Traditionally companies typically stress employee training. Training increases skills and competence and teaches employee the ‘how’ of a job. Whereas in companies that have re-engineered, the emphasis shifts from training to education. Education increases their insight and understanding and teaches the ‘why’. Companies need flexible enough with the changing needs.

(e) Change in Focus of Performance Measures and Compensation

The primary focus of performance measures and compensation shifts from activity to results. Worker compensation in traditional companies involves people being paid for their time. In most of the traditional operation, an individual employee’s work has no quantifiable value. Only the completed process that ends with a customer has value to the company. When work is fragmented into simple tasks, companies have no choice but to measure worker on the efficiency with which they narrowly defined work. The increased efficiency of narrowly defined tasks does not necessarily translate into improved process performance.

Re-engineering also forces companies to reconsider some basic assumptions about compensation. For example, the performance of an employee in a re-engineered job at the present does not speak of the performance in the future. Thus base salaries in companies with re-engineered processes tend to remain relatively. Substantial rewards for outstanding performance involve bonuses and not pay raises. After re-engineering, people will be paid on only results.

In companies that have re-engineered, contribution and performance are the primary bases for compensation.

(f) Change in Advance Criteria

Advancement criteria change from performance to ability. A bonus is the appropriate for a job well done. Advancement to a new job is not. After re-engineering, the distinction between advancement and performance is firmly drawn. Advancement to another job within the organization is a function of ability, not performance. It is a change, not a reward. A company should pay for performance and promote for ability. This becomes a way of life for a firm after re-engineering.

(g) Change in Values

Re-engineering entails a great shift in the culture of an organization. It demands that employees deeply believe that they work for their customers, not for their bosses. This makes the company’s reward system to reinforce it.

An organization’s management systems, the ways in which people are paid, the measures by which their performance is evaluated, are the primary aspects that decide employees’ values and beliefs. Solely a corporate value statement cannot accomplish this. A value statement must be reinforced by the company’s management systems giving them life and reality within the company through personal commitment. The cultural values found in traditional companies are the byproducts of fragmented management systems, which focus on past performance, emphasize control, and enshrine the hierarchy.

In a company that has re-engineered, employees must hold beliefs such as:

· Customers not bosses pay all our salaries: I must do what it takes to please them.

· Every job in this company is essential and important: I do make a difference.

· Showing up is no accomplishment: I get paid for the value I create.

· Responsibility: I must accept ownership of problem and get them solved

· Team belongingness: We fail or we succeed together

· Adaptability: Constant learning is part of my job

(h) Change in Manager’s Roles

Role of a manager’s role changes from a supervisors to that of a coaches. When a company re-engineers, once complex processes become simpler while once simple jobs grow complex. Consequently, the company’s managers have to spend less time keeping work moving between departments but more time helping employees do richer and more demanding work. The team asks coaches for advice and the coach in turn help team solve problems.

Managers in a re-engineered company need strong interpersonal skills and have to take pride in the accomplishment of others. Such a manager is a mentor, who is there to provide resources, to answer questions, and to look out for the long-term career development of the individual. This is a different role from the one most managers have traditionally played.

(i) Change in Organizational Structure

Organizational structures change from hierarchical to flat. When the whole process becomes the work of a team, process management becomes part of the team’s job. Decisions and interdepartmental issues that used to require meetings of managers and manager’s managers now get made and resolved by teams during the course of their normal work. Pushing decisions about work down to the people doing it means that managers’ traditional roles are diminished. As already said managers role will take the form of a coach. In a traditional organization, structure is the mechanism through which a great many issues get resolved and questions get answered.

The basic unit of a traditional organization is the functional department, which is a collection of people performing similar tasks. The organization as a whole consists of these functional departments arranged in various ways. The organizational structure establishes the lines of communication with in and determines the decision-making hierarchy.

In companies that have re-engineered, organizational structure is not such a weighty issue. Work is organized around processes and the teams that perform them. People communicate as a network and, control is with the people performing the process.

Consequently, whatever organizational structure remains after re-engineering tends to be flat, as work is performed by teams of essentially equally capable people operating with great autonomy and supported by a few managers. This is because while a manager can typically supervise only about seven people they can coach a may be, thirty people.

(j) Change in the Role of Executive

The role of executives would change from scorekeepers to leaders. Flatter organizations move senior executives closer to customers and to the people performing the company’s value-adding work. In a re-engineered environment, the successful accomplishment of work depends far more on the attitudes and efforts of empowered workers than on the actions of the task oriented functional managers. Therefore, executives must be leaders who can influence and reinforce employees’ values and beliefs by their words and their deeds.

Executive have overall responsibility for re-engineered process performance without having direct control over the people performing them. These people are working more or less autonomously with the guidance of their coaches. Executive fulfill their responsibilities by ensuring that processes are designed in such a way that workers can do the job required and are motivated by the company’s management systems namely the performance measurement and compensation systems.

Thus the executive’s role shifts from the perspective of finance to becoming leadership charge of shaping the processes and providing workers with motivation. The executives are intimately concerned with how the work gets done.

2B. List the technologies that disrupt and break the rules that limit how work is conducted, leading to competitive advantage.

It is recommended that the role of information technology as an enabler is very important and significant in re-engineering. Thinking deductively about technology not only causes people to ignore what is really important about it, it also gets them excited about technologies and applications that are trivial and unimportant. The true power of technology is to offer answers to problems people do not know that they have. Breakthrough technology makes feasible activities and actions of which people have not yet realized. The challenge that corporations fail to meet is recognizing the business possibilities that lie latent in technology.

Breaking rules is how people learn to think inductively about technology during the re-engineering process. Teleconferencing, for example, breaks the rule that remotely located people can meet only infrequently and at great cost. With teleconferencing, it is possible for these people to meet often and inexpensively in an environment where limitations of geographical separation do not pose any barrier. That insight gives a company a powerful tool for transforming its operations. A discount retailer used this technology to allow people in the headquarters to provide store managers in the field with guidance and advice. Teleconferencing enabled them to combine local initiative with centralized expertise.

Another company manufacturing cars used production schedule database and electronic data interchange (EDI) to operate with its supplier as one company to eliminate overhead in both the organizations.

It is the disruptive power of technology that and its ability to break the rules that limit how work is conducted and leads to competitive advantage. In the following sections many other disruptive power of information technology has been illustrated.

(a) Shared Databases

When information is captured on paper and stored in a folder, only one person can use it at a time. Making copies and distributing them is not always feasible and, in any event leads to the creation of multiple and eventually inconsistent versions of the file. Consequently, work involving this information tends to be structured sequentially, with one individual completing the tasks, and then passing the folder to the next in line.

Database technology changes this rule. It allows many people to use the information simultaneously. By allowing one document to exist in several places at once, database technology can free a process from the artificial limitations of sequencing.

(b) Expert Systems

The value of expert systems technology lies in its allowing a non-expert to operate at nearly the level of a highly trained expert. For example, in a major chemical company, an expert system advises customer service representatives on product features and relationships. This system has allowed each of them to treat every customer inquiry as a cross-selling opportunity, which only the very best had done. Generalists supported by integrated systems can do the work of many specialists, and this has profound implications for the ways in which the work is structured. By eliminating the handoffs, the re-engineered process can achieve order of magnitude improvement in cycle time, accuracy and cost.

(c) Telecommunications Networks

Manufacturing plants, service facilities, and sales offices located far from the headquarters must be treated as separate, decentralized, autonomous organizations if they are to function effectively. This is mainly because the company must sacrifice central management control in order to achieve flexible and responsive field operations. High bandwidth telecommunications networks allow headquarters to have the same information that field offices have and to see the data that field offices use, and vice versa in real time. With this shared capability, companies can utilize whatever arrangements like centralization, decentralization, or some hybrid that best serves the markets.

(d) Decision Support Systems

Better information has allowed lower-level managers and workers to make superior decisions. Also referring every decision-making authority up the hierarchy means decisions get made too slowly for a dynamic and complex market. Today, companies say they realize that frontline workers must be empowered to make their own decision, but empowerment cannot be achieved simply by giving people the authority to make decisions. They need the necessary tools as well.

Modern database technology allows information previously available only to management to be made widely accessible. When accessible data is combined with easy to use analysis and modern tools, frontline workers with proper training become capable of making fast, effective, and sophisticated decisions.

(e) Wireless data communication and Portable computers

With wide-band, wireless data communications and portable computers, field people of various occupation can request, view, manipulate, use and transmit data almost anywhere without ever having to travel back to the office. With mobile phones, laptops, palmtops and personal computers people can connect to information sources wherever they are. For example in an elevator company, customer service providers update the records on the spot, and then send the information through a modem to the headquarters. Wireless data communication goes further and begins to eliminate the need for the field offices completely.

(f) Interactive videodisk

Interactive videodisks allow viewers to watch a video segment on a computer screen and then ask questions or answer them on screen. This was previously used in training but has been currently used to augment retail sales force for customer support. Customers at these stores can select a product from a menu, watch a video presentation about it, ask questions, and if satisfied can order it. For information that is best communicated visually, this technology proves very useful.

(g) Automatic identification and Tracking

Combined with wireless communication technology, automatic identification technology and tracking can be used to track anything from trucks to packages. Some railroads, for instance, are implementing satellite systems to tell them where a given train is at any given moment.

(h) High Performance Computing

The capacity of increasingly affordable computing power creates new application possibilities for companies. A computer supplied with real time data from point-of-sale terminals could aid better decision making, reduce inventory, improve customer satisfaction and value.

3. Explain the most common errors that lead companies to failure in reengineering projects.

Many companies that begin re-engineering don’t succeed at it. They end their efforts precisely where they began, making no significant changes, achieving no major performance improvement and fuelling employee criticism with yet another ineffective business improvement program. An estimate is that as many as 50 percent to 70 percent of the organizations that undertake a re-engineering effort do not achieve the results they intended.

(a) Trying to Fix a Process instead of Changing it

The most common egregious way to fail at re-engineering is by not re-engineering at all, but rather conducting process changes and just calling it re-engineering. Recently, the term “re-engineering” has acquired a certain cachet, and it has been attached to all programs that in fact have nothing to do with radical process design.

A credit company re-engineered its credit issuance process. But first, it tried to “fix” the old process several times before it faced up to the need for radical process redesign.

(b) Inadequate Focus on Business Processes

For example, the progressive management of a company commissioned several task forces of workers to address the critical issues: empowerment, teamwork, innovation, customer service and so on. The task forces’ agenda were a glossary of contemporary business clichés. Each group was given ninety days to develop recommendations as to how the organization could make major progress on its respective issue. The program was a failure. The reason that this effort, with so much executive support and widespread participation, ended in such a failure was because the problems were poorly defined. The flaw in this company’s efforts and in similar attempts elsewhere, is that it failed to take a process perspective on the business. Without that business improvement efforts amount to nothing. Teamwork and empowerment are mainly supporting factors once process perspective is in place.

(c) Ignoring Everything Except Process Redesign

A re-engineering effort triggers changes of many kinds. Job designs, organizational structures, management systems-everything associated with the process-must be refashioned in order to maintain a coherent business system diamond.

When Ford re-engineered its vendor payment process the effect reached as far as clerks on the receiving docks, who suddenly became decision makers. They now had to use a computer terminal to determine whether the arriving shipment corresponding to an outstanding order, instead of just stamping paper with times and dates. If not, it was their responsibility to refuse the shipment and send it back. People who formerly had virtually no responsibilities now had to think and make decisions.

(d) Neglecting People’s Values and Beliefs

People need some reason to perform well within the re-engineered processes. It isn’t enough simply to put new processes in place; managers must motivate employees to rise to the challenge of these processes by supporting the new values and beliefs the processes demand. In other words, management must pay attention to what people think as well as to what happens on their desks.

When Ford re-engineered the way it paid its vendors, workers’ attitudes and behaviors had to shift as well. Purchasing personnel could no longer view vendors as adversaries. They had to be viewed as Ford’s partners in a shared business process.

When an insurance company re-engineered its processes for reviewing insurance applications, it also had to make a radical change in its culture. Supervisors could no longer be taskmasters, but had to function as providers of service to the employees actually performing the work in order to making sure that process workers had all the tools and support they needed to do their jobs.

Changes that require shifts in attitude are not easily accepted. Mere communications through speeches may not be sufficient. New management systems must cultivate the required values by rewarding behaviour that exhibits them. But senior managers must also communicate about these new values, as well as demonstrate their commitment to them by their personal behaviour.

(e) Not aiming for Radical Results

Big results require big ambitions. A critical test of ambition occurs at that point in a re-engineering effort when someone suggests a modest change will make a re-engineering effort will make the process work 10 percent better for practically no cost, in contrast to the pain and suffering engendered by re-engineering. The temptation to take the easy path and to settle for marginal improvement is great. In the long run, however, marginal improvement is no improvement at all, but a detriment.

Marginal improvements, as a rule, further complicate the current process, making it subsequently more difficult to figure out how things really work. Even worse, making additional investments of time or capital into an existing process down the road. Most destructively, taking incremental steps further reinforces a culture of incrementalism, creating a company with no valor or courage.

(f) Abandoning the Project Prematurely

It should not be surprising that some companies abandon re-engineering or scale back their re-engineering goals at the first sign of a problem. But some companies call off their re-engineering effort at the first sign of success. As soon as they have any significant outcome for their efforts, they stop. The initial success becomes an excuse to return to a state of complacency. In either case, by failing to preserve, the company foregoes the huge payoffs downstream.

(g) Placing Prior Constraints on the Definition of the Problem and the Scope of the Re-engineering Effort

A re-engineering effort is doomed to fail when, before it even begins, corporate management narrowly defines the problem to be solved or limits its scope. Defining the problem and establishing its scope are steps in the re-engineering effort itself. Re-engineering begins with articulating objectives that the effort seeks to achieve, not the ways in which these objectives will be met.

The experience of an industrial equipment manufacturer illustrates this point. Senior management told its consultants that the company’s order fulfillment process was too expensive. Their charges were to shrink the operating cost of this process.

As the consultants investigated the problem, they talked to the company’s customers; all of them said they hated practically everything about the company except the equipment it made. If they could buy those same products from someone else, they said, they would do so in a minute.

(h) Barriers to Re-engineering due to Existing Culture and Attitude

A company’s prevailing cultural characteristics can inhibit or defeat a re-engineering effort before it begins. For instance, if a company operates by consensus, its people will find the top down nature of re-engineering offend their sensibilities. Companies whose short-term orientations keep them exclusively focused on quarterly results may find it difficult to extend their vision to re-engineering’s longer horizons. Organizations with a bias against conflict may be uncomfortable challenging long-established rules. It is executive management’s responsibility to anticipate and overcome such barriers.

(i) Initiating and Implementing Re-engineering Bottom-up

It goes without say that re-engineering never ever happens from the bottom up. There are two reasons why frontline employees and middle managers are unable to initiate and Implement a successful re-engineering effort, no matter how great the need or how extraordinary their talent.

(j) Assigning an Incompetent Re-engineering Leader

Senior management leadership is a necessary prerequisite for successful re-engineering, but not just any senior manager will do. The leader must be someone who understands re-engineering and is intuitively committed to it. The leader must also be someone who is oriented toward operations and appreciates the relationship between operational performance and financial results. Only a process-oriented senior executive, who is capable of thinking about the entire value-added chain from product concept to sales and service can lead a re-engineering effort. Seniority and authority are not enough; understanding and the right mindset are critical as well.

(k) Granting Inadequate Resource to Re-engineering

A company cannot achieve the performance breakthroughs that re-engineering promises without investing in its re-engineering program. The most important component of this investment is time and attention of the company’s best people. Re-engineering also demands the direct and personal involvement of senior management. Just as it cannot bubble up from the bottom of the organization, re-engineering cannot be delegated down into it. Senior people do not have to do the re-engineering themselves. They can deputize helpers and collaborators, but they cannot abdicate the responsibility for the effort to them. Re-engineering must be the leader’s personal project, with all that it implies. Quarterly progress reviews may not work. The senior management team must invest regular effort in guiding and monitoring the activities of all the re-engineering projects underway in the company.

Assigning inadequate resources to the re-engineering effort also signals the organization that the management does not consider the attempt to be invariably important and encourage people to ignore or resist it in the expectation that before long it will have to run its course.

(l) Bury Re-engineering in the Middle of the Corporate Agenda

If companies do not put re-engineering at the top of their agenda, they should leave it off entirely. If management attention and energy are spread across many different efforts or programs, of which re-engineering is only one, re-engineering will not get the intense attention that it requires. Without constant management concern, resistance and inertia-the neutral tendency of people and organizations to continue doing much of what they always done-will bring the efforts to a halt. Only if people recognize that the management is committed to re-engineering, is concentrating on it and is giving it regular and close attention, will they reconcile themselves to its inevitability.

(m) Embarking on Many Re-engineering Projects at Once

Re-engineering requires sharp focus and enormous discipline, which is another way of saying that companies must concentrate their re-engineering efforts on a small number of processes at any given time. An organization becomes bewildered rather than energized when it is asked to do much at once. The customer service, research and development and sales processes may all need radical redesign, but nothing may happen if the company tries to tackle them all simultaneously unless it has exceptional management capacity. Management’s time and attention are limited and re-engineering will not obtain the crucial support it needs if managers have to flit among projects.

(n) Attempting to Re-engineer without an Assured Commitment

The CEO or business unit head who is year or two from retiring may take a dim and unenthusiastic view of re-engineering. This is not because he or she has grown lazy or no longer cares about the organization’s future. Rather, making fundamental changes in business processes will inevitably have major consequences for the structure of the company and many of its management systems. An imminent retiree may simply not want to deal with such complex issues or to make commitments that will constrain a successor.

A second problem raised by a CEO close to retirement is the effect that the impending change at the top is likely to have on other managers. Especially in hierarchical organizations, contenders to a senior post that is about to open up often feel that they are being watched and judged. If so, they may be more interested in individual performance than in being part of a large, collective re-engineering effort. Furthermore, they will have no interest in any program that changes the familiar rules by which they have gained positions in the organization and they will want to avoid any possible risk until the succession die is cast.

(o) Failure to Distinguish Re-engineering from Improvement Programs

As times get tougher, companies embark upon many business improvement programs. The business media are brimming over with ideas and programs to make companies better: quality improvement, strategic alignment, “rightsizing”, customer-supplier partnerships, innovation and empowerment, to name a few. Usually most of these programs are short-lived. A danger for re-engineering is that employees will see it as just another Program of the month. This danger will certainly materialize if re-engineering is delegated to an impotent staff group. To preclude this possibility, management must make re-engineering the responsibility of line managers, not of staff specialists. It should get behind it cent percent. Moreover, if the company is in fact seriously committed to another business improvement program (such as TQM), then great care must be taken to carefully position re-engineering relative to the other program. Otherwise, confusion will result and enormous energy will be expended on pointless conflicts about which program is superior.

(p) Exclusive Focus on Design

Re-engineering is not just about design. It is also about translating new designs into reality. The difference between winners and losers at re-engineering does not usually lie in the quality of their respective ideas, but in what they do with them. With losers, re-engineering never moves beyond the idea phase into implementation.

(q) Aiming for a Smooth Transition and Change

It would be nice to say that re-engineering is a win-win program that leaves everyone better off; it would be nice, but it would also be a lie. Re-engineering is not to everyone’s advantage. Some employees do have a vested interest in current operations, some people will lose their jobs and some workers may be uncomfortable with their jobs post-re-engineering. Trying to please everyone is an impossible ambition that will either devalue re-engineering to a program of incremental change or delay its implementation into the future.

(r) Withdrawal from the Project in the for Efforts and Results

Resistance to change should not surprise in charge of a company’s re-engineering effort. Resistance is an inevitable reaction to major change. The first step in managing resistance, however, is to expect it and face it without letting it setback the effort.

Some managers are heard saying that re-engineering failed in their companies because people resisted change. It is people’s failure to heed it that causes crashes and management’s failure to anticipate and plan for the inevitable resistance that re-engineering will encounter is the true cause of its failure.

(s) Excessive Pressure for Efforts and Results

Re-engineering is stressful for everyone in a company, and stretching it over a long time period extends the discomfort. Experience suggests that twelve months should be long enough for a company to move from articulation of a case for action to the first field release of a re-engineered process. If taken longer, people will become impatient, confused and distracted. They will conclude that re-engineering is another fake program and the effort will fall apart.

Undoubtedly, there are more paths to re-engineering failure than those just listed. People are remarkably resourceful in finding new ways to drop the ball. However, one strong thread runs through all the pitfalls that have been encountered. That thread is the role of senior management. If re-engineering fails, no matter what the proximate cause, the underlying reason can be invariably traced to senior managers’ inadequate understanding or leadership of the re-engineering effort is always initiated and if not managed well, fails at the hands of the senior management.