Business Process Reengineering

Despite many years of restructuring and downsizing through process rationalization and automation, US companies have not obtained the improvements that she needed. This can be attributed to companies leaving the existing processes intact and using compu ters simply to speed them up! But speeding up those processes cannot address their fundamental performance deficiencies. Many of the job designs, work flows, control mechanisms, and organisational structures came of age in a different competitive envir onment and before the advent of the computer. Instead of computerizing outdated processes, we should "reengineer" the business processes, that is, to use the power of the computer to radically redesign the business the processes. Only through such a radical approach can companies achieve great improvement in their performances.

The process of "reengineering" involves the breaking of old, traditional ways of doing business and finding new and innovative ways. And from the redesigned processes, new rules will emerge that will determine how the processes will operate. The reengineering process is an all-or-nothing proposition, the results of which are often unknown until the completion of its course.

The Ford Motor company and the Mutual Benefit Life company are two of the many companies that have taken this path and succeeded in reengineering their processes. The Ford Motor company, in order to find ways to reduce costs, decided to look critically at each department to see if it can be tightened. The accounts payable was one of the departments that needed to be tightened due to its excessive labour force. The Ford managers then set out to achieve it. The managers analyzed the existing system and found that the department spent most of its time on mismatches, that is when the purchase order cannot be matched against the corresponding receiving document and invoice. A way to improve the performance of the department was to prevent mismatches through the use of "invoiceless processing" where all the information is entered into an online database. The new method involves matching only three items which is done automatically. Ford was able to achieve a 75% reduction in head count, had a simpler material control and financial information is more accurate.

The Mutual Benefit Life (MBL) company reengineered its processing of insurance applications. The original process involved a long multi-step process. MBL obliterated the existing job definitions and departmental boundaries and created a new position called a case manager, who works autonomously and handles an application from the time it is received to the time the policy is issued. The empowering of the individual has resulted in the reduction of manpower and at the same time, the case ma nagers can handle more than twice the volume of new applications.

A fundamental notion of reengineering is the obliteration of outdated rules, assumptions, and processes. Processes that are weighing down the company must be challenged and evaluated to see if there is a better option. Traditional rules of work design are mainly based on a model of decentralization (specialization of labour) and economy of scale derived from the Industrial Revolution. This is a breeding ground for tunnel vision where ac countability blurs, and critical issues fall between the cracks. No one is able to see the whole picture to be able to respond quickly to new situations. As a result, it should not be surprising to companies to find their businesses underperforming due to these processes and structures that are obsolete. "Reengineering requires looking at the fundamental processes of the business from a cross-functional perspective." This implies that by neccessity, for reengineering to work, the team assembled to reengineer the process should represent the functional units involved in the process being reengineered and all the units that depends on it. The reengineering effort must break away from convention wisdom and organisational boundaries, be broad and cross-functional, and use information technology not to automate existing process but to enable a new one.

The basic guidelines to reengineer the business process are:

  1. Organize around outcomes, not tasks. This principle suggests that a single person perform all the steps in a process and that person's job be designed around the outcome or objective rather than a single task.
  2. Have those who use the output of the process perform the process. In this way, there is little need for the overhead associated with managing it. Interfaces, liaisons and mechanisms used to coordinate those who perform the process with those who use it can be eliminated.
  3. Subsume information-processing work into the real work that produces the information.
  4. Treat geographically dispersed resources as though they were centralized. Companies can use databases, telecomunications networks, and standardized processing systems to get the benefits of scale and coordination while maintaining the benefits of flexibility and service,
  5. Link parallel activities instead of integrating their results. This principle means to forge links between parallel functions and to coordinate them while their activities are in process rather than after they are completed.
  6. Put the decision point where the work is performed, and build control into the process. This principle suggests that instead of having those who do the work separate from those who monitor the work, the people who do the work should also make the de cisions and that the process itself can have built-in controls.
  7. Capture information once and at the source. A critical factor for reengineering of the business process to succeed is to have executive leadership with real vision. Only if top-level management back the effort and outlast the cynics will people take reengineering seriuosly.

Summary of "Reengineering Work: Don't Automate, Obliterate"
by Michael Hammer Harvard Business Review, July-August 1990, pp104-112.