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Re-engineering: a breakthrough or little new?
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Socio-Econ. Plann. Sci. Vol. 32, No. 2, pp. 155-167, 1998
Pergamon PII:
S0038-0121(97)00006-2
© 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0038-0121/98 $19.00 + 0.00
Re-engineering: a Breakthrough or Little New? SUMER AGGARWAL Suffolk University, Boston, MA 02108, U.S.A.
Abstract--Thi paper s first provides various definitions of the term re-eng&eering. Next, it explains why companies undertake re-engineering and what factors represent major inputs to the process. An attempt is made to provide a sequence of steps that must be gone through for implementing any re-engineering project. In addition, the paper highlights those key risks and problems that cannot be avoided during its execution. In the end, the authors argue that re-engineering includes little new; rather, most of its constituents can be found in organizational improvement programs of the past. Even the success factors for re-engineering are not much different from those of earlier programs. The paper also provides a tabular analysis of 25 published re-engineering caselets in support of the thesis that re-engineering is not new, but can be any combination of action-items designed to improve the profitability and long-term survival of a company. Finally, a few conjectures about the future of re-engineering programs are outlined. © 1998 Elsevier Science Ltd. All rights reserved
Re-engineering has been p r o m o t e d as the redesign o f core business processes for b r e a k t h r o u g h gains in cost, service and/or cycle-time. By definition, a business process is a set o f activities designed to fulfill the needs o f an internal or external customer. The improvement provided by re-engineering might include elements such as fast response in logistic systems, closing o f c o m p a n y accounts in one day, accelerated p r o d u c t development, etc. A business process is basically a patterned a p p r o a c h to conduct business. The processes invariably transcend departmental and functional borders. In any c o m p a n y , generally five or six processes are critical. F o r example, they could be material procurement, customer relations, p r o d u c t leveraging, solutions integration, etc. Re-engineering is supposed to start with a new vision, new mission and new customers. If there is no new vision, then re-engineering efforts m a y prove worthless. Re-engineering generally involves dealing with a u t o m a t i o n and systems, and with a change in vision normally leading to a change in applications and infrastructures. A few authors, on the other hand, suggest that there is nothing new a b o u t re-engineering; rather, it is, in spirit, the same as earlier creative m a n a g e m e n t efforts. Re-engineering projects are b r o u g h t a b o u t as a coincidence o f factors such as emerging technologies and evolving customer demands for new products. Use o f information technology (I.T.) in the redesign o f business processes is but one aspect, although re-engineering seems to emphasize the use o f information technology in applying industrial engineering techniques [1]. On the other hand, some consultants [2] define re-engineering as process management. F o r example, a pharmaceutical c o m p a n y can look at a healthcare system as a bundle o f care delivery, care management, and care coverage processes. Further, they m a y emphasize that re-engineering can be used to obtain convergence a m o n g strategic direction, organizational design, staff capacity and the coverage processes. It is important to note that every little change is likely not re-engineering, as this effort should focus on key processes. Further, there can be substantial trial and error prior to the final redesign. There are always significant risks, and, o f course, there are expectations for higher payoffs as well. In m a n y past cases, re-engineering objectives have remained rather fuzzy, often lacking measures in relation to new competitive priorities [3]. F r o m the above discussion, one can confidently conclude that there is no single and universally accepted definition o f re-engineering. Various consulting groups have offered their own limited 155
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views of the term, as they utilize it. We attempt to provide an overall picture of re-engineering with the following five specific viewpoints that seem to be most prevalent. 1. It is a redesign of core business processes for breakthrough gains. 2. It starts with a new vision, new mission, and new customers. 3. It is brought about as a coincidence of emerging technologies, and evolving customer demands for new products. 4. It emphasizes the use of information technology (I.T.) [4] in applying routine industrial engineering techniques. 5. Any little change is not re-engineering if it does not help to manage a process efficiently. Re-engineering, as defined in the literature, appears to be another 'new' program such as productivity improvement, Just-in-Time (JIT) [5], Total Quality Management (TQM) [6], Continuous Improvement Program (CIP) [7] and several others that have been aggressively promoted by consultants during the last 25 years. U.S. companies have spent billions of dollars on each of these programs. Of course, there have been some successes, as reported on in the management literature by various consulting groups. Side-by-side, 70% or more of the companies could not obtain their money's worth in return. However, it appears that very little gets published about any of these failures or disappointments as the senior executives who supported the programs simply do not wish to publicize their mistakes and shortcomings. Secondly, the consultants (authors) who benefit financially from delivering these programs to companies do not wish to tarnish their personal reputations, fearing loss of future earnings. This paper is based on a critical analysis of more than 25 published studies. In so doing, it attempts to make a realistic assessment of 're-engineering' which has been one of the 'hottest' management programs of the last five to seven years.
MOTIVATIONS FOR R E - E N G I N E E R I N G Re-engineering projects may be undertaken for a variety of reasons. But, the most important ones are: (a) fear of loss of a dwindling market share, (b) wish for excessive profits, (c) urgent need for faster product development and/or, (d) control of exploding overheads. Unlike the past, companies now need to focus more on quality, innovation, and service; with a bit less emphasis on cost (but, of course, not entirely so). Gaps in customer satisfaction may suddenly appear due to a variety of reasons such as extremely fast expansion of company business, turmoil in industry due to deregulation, or customers looking for the company to become more global in its outlook. Managers may thus target business processes for re-engineering when they come across (i) customer complaints, (ii) opportunities available with vendors, (iii) a possibility of value-addition to company products/services with acquisition of unique capabilities, and/or (iv) a chance for competing on price or with a unique product. At times, re-engineering may be undertaken for very specific objectives, such as reduced cycle-time of product development, a sudden leap in technology for large profits, or reduction in head count. Without a specific milestone, however, re-engineering projects may remain fuzzy, or even result in some form of disaster [8]. Often, re-engineering projects are undertaken in the hope of taking a leap over the competition. The most pressing circumstances or situations begging for re-engineering projects, could be one, or a combination of, two or more of the following unexpected displacements [9]: • • • • • •
Customer service has fallen behind the competition. The product-development cycle-time has become much longer compared to industry average. The nature and core elements of competition have shifted far away from those of the past. The information and communications technology of the industry is changing at a rapid pace. The non-value overheads are growing exponentially. Error and defect rates have been rising beyond tolerable levels.
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• The profit squeeze has become unacceptable. • Production costs are rising faster than what the market can bear. • The company is experiencing loss of flexibility in terms of product-mix and volume-mix.
INPUTS Executive vision and aggressive leadership are the basic inputs to re-engineering. Managers pursuing re-engineering must thus remain committed and consistent, while trying to persuade others, who might prefer the status quo. Re-engineering may require hefty inputs in employee training and in information technology. The CEO and top managers must therefore be able to generate sufficient courage and perseverance to implement redesigns in the face of potentially stiff opposition and resistance from both within and outside the organization. Re-engineering requires committed and empowered employees in that success of a project depends upon their knowledge, skills, creativity and openness to change. If a focus is kept on quality employees, then quality, productivity, and flexibility follow suit almost automatically. Team leaders must be able to think for themselves, engage in proactive communications, and promote interdependence among their team members. Further, re-engineering requires an almost crisis atmosphere for bringing about change. In crisis, for employees, the prevailing need for psychological safety may turn into anxiety as employees may not possess the skills needed for change, or may even be afraid of failure in seeking and acquiring new skills. Employees are often forced to think deeply in 'unfreezing' their attitudes towards change. In a way, re-engineering requires preparation for discontinuous improvement. As might be expected, a crisis can be imposed by outside forces, or may be constructed internally by upper management. Importantly, any change effort requires an intervention. These, in turn, target the work-processes, managers and individual contributors. Interventions may be considered something like earthquakes, which generally do not cause total destruction of the existing structures. Interventions should be performed gradually, but be able to promote revolutionary (as opposed to evolutionary) change. Another essential ingredient for re-engineering is championing by a business manager. Many times, the CEO himself/herself may have to assume the role of a champion. However, the consultant's role in re-engineering projects must be limited to advice, technical expertise and training. Consultants may also be used as outsider scorekeepers for purposes of monitoring the progress of a project. In most cases, up to 5% of the total budget of the re-engineering project will have to be set aside for technical training of employees in areas like process-analysis, teamwork, and essential new skills.
IMPLEMENTATION STEPS It is generally accepted that there is no single step-by-step methodology for accomplishing the re-engineering of an organization. Each of the published re-engineering efforts indicates a somewhat different mix and sequence of steps. However, there is a common thread running through most of these efforts [1-3, 10-21]. In the following, the authors of this paper attempt to provide a list of what appears to be the 'essential steps' and arrange them in a rough sequence, one which seems to have prevailed in a majority of projects. It may also be noted that none of the projects made use of each and every step. At times, the re-engineering team merged two or more steps into a single major step. Hence, the following list and sequence may be treated as but a rough guideline.
Step 1 'Think big' is the first step to re-engineering. Expect changes in the organization's structure, management system, job-designs and rewards. All parts and systems within the company should be coordinated.
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Step 2 Appoint a Steering Committee of those 'best' managers who would be responsible for overseeing the re-engineering project. This committee should outline a specific strategy and set goals for the company. They must focus on the value that the company is to deliver to the customer. Step 3 This committee must also promote a sense of urgency. In this regard, the team members may be urged to talk to customers about the competition. However, they must first concentrate on the most critical processes and then on setting some macro-targets. They must also announce change initiatives and widely disseminate that information. They should develop benchmarks for individual processes. In addition, they must also prepare their employees for impending changes by communicating details to them about the competitive situation, re-engineering concepts, data collection requirements, survey feedback on culture, as well as other possible problems. Step 4 The team also needs to specify the relevant mission and goals/objectives, as well as the customers of the process outputs, and then map the process flow activities in some detail. Next, the team should establish baselines for volumes, cycle times, defect rates, and costs. Baseline analysis almost invariably provides early successes and larger cash flows. Step 5 As in classic marketing, the team must start with the needs of the customer, and redesign the process from the outside-in. In this effort, they may use customer focus groups to pinpoint critical redesign features. Their focus must then be on those points of the process that can provide the most leverage. Before finalizing the redesign, they must be able to visualize the future shape of the process. They also need to document each and every helpful idea and communicate same to the line managers. In this way, they can help the employees to better understand the redesign and, as a result, help promote greater acceptance. During redesign, the team must constantly look for high potential opportunities while seeking to eliminate problems of the past. Step 6 Baselining, visioning, and redesign may take three to six months. Next, the team must consolidate all parts of the analysis and develop a comprehensive implementation plan that integrates the changed processes and the supporting new elements into the total system. At this stage, the team should seek out relevant information technology and related projects. For each of these projects, it would be useful to prepare a justification for their capital expenditures. It may be noted that a variety of companies have attained excellent results from re-engineering efforts by introducing cellular technology [22], group technology [23], JIT, TQM etc. Importantly, though just 'throwing in' IT may not generate the best solution. By definition, re-engineering is designed to do the most with the least. Also, recall that dependence on cumbersome bureaucratic processes and technologies may not be of much help. In fact, in some cases, they can bring confusion and less-than-efficient expenditures. Step 7 At this stage, the focus must move to implementation of all activities and aspects of the redesigned processes. Here, the line managers are made fully responsible for the timetable and the budgets, while the employees are asked to try their own new tasks and identify relevant checkpoints. At the same time, management must set up training schedules, reward systems, and career-paths that will reinforce support for the redesigned processes on a continuing basis. In actual practice, they would find that a top-down approach works best for setting targets, but that a bottom-up approach is more appropriate for implementation. However, the implementation process must be kept simple. There should be no hurry in working out details of the redesigns, especially since there are instances in which the process itself may have to be eliminated. Step 8 If outside consultants are used, then management should insist on savings sufficient to cover costs for all stages of the re-engineering process. In this regard, the company should exercise close control over the costs of consultants and information technology, as the former alone, may easily exceed $250 000 per month, and, at times, IT costs can truly get 'out of hand'. The company must therefore insist that system users generate and collect the information supporting their key needs, and then process it for value-adding functions. Clearly a hodgepodge/patchwork of reports must not be allowed to occur. Step 9 Progress on re-engineering efforts must be measured and correlated with the organization's envisioned strategic objectives. At times, the core processes may be allowed to transcend budgetary reviews and strict accountability, particularly when they cross departmental lines. Collection of performance data is not only essential for judging how re-engineering is supporting the business goals, but also for evaluating the organizational personnel.
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PROBLEMS Re-engineering of processes is virtually always accompanied by personnel layoffs. Employees also feel threatened (sometimes, extremely so) by impending changes. Re-engineering can thus bring about a serious disruption of existing structures, methods, and systems; and such a situation can surely cause pain and agony to many employees. As fear, resistance, and cynicism arise, employees can respond by rejecting new ideas, as well as resisting and undermining the proposed changes. Almost without exception, re-engineering projects involve substantial costs. On the other hand, a managerial focus on cost reduction without some increasing value for the customer can lead to serious morale, communication, and turnover problems. Re-engineering efforts may provide dramatic improvements early on, but such gains can slowly disappear. For example, one computer company quickly cut its process costs by 34%; its operating income never improved. Similarly, an insurance company shortened its claim processing time by 44%, but yet its profits declined. In this regard, McKinsey and Co. indicate they found that in 11 of 20 re-engineering cases studied, the earnings before taxes improved by less then 5% [16]. If numerous re-engineering projects are initiated side-by-side, they may have overlapping goals, as well as a competition for existing resources. It may, for example, lead to too many meetings, excessive jargon, and conflicting priorities, generating a loss in focus. In addition, re-engineering may consume significant capital, enthusiasm, and entrepreneurial spirit. And, if this continues through several projects, the company may not have sufficient resources for additional projects, for eliminating crucial deficiencies, or even to meet unexpected competitive challenges. After the redesign process is complete, many senior employees may lack the skills needed to implement and control the new processes. They may therefore attempt to defend the value of their expertise aggressively, in order to save their jobs, status and empowerment. Eventually, a good number of senior executives may thus be replaced as has happened at many organizations such as, Smith-Kline, Beecham, and Pepsi. As might be expected, re-engineering is very risky, with success never really assured. Thus, if the redesign effort is not fully accomplished, the business may be lost forever. On the other hand, if major changes are made, the company may be compelled to write off huge investments for retraining, hardware, systems development, etc. In addition, there is the accompanying risk of team members leaving or being 'let go' [24]. The most common problem in completing a redesign is that business managers often do not approve IT projects. This, despite the fact that they are the critical inputs to newly developed operating systems. Such input projects could be in the form of the cleaning up of past customer data, retraining of operators in new technologies and methods, and developing technical coding standards. When a re-engineering project is allowed to extend beyond two years, the interest of team members may become diluted. Further, the high visibility of re-engineering projects alone makes them risky, since employees will likely expect significant payoffs from them. In addition, an inherent complexity, and a need for excessively close coordination for accomplishing the redesigned operations can often be stressful for those managers and team members responsible for the effort. Achieving real success in re-engineering efforts can, however, easily take two to three years. Not unexpectedly, delayed results may cause many employers and other stakeholders to become impatient. This suggests that managers must be fully prepared to overcome and diffuse tense situations.
ALL THE OLD ADAGES If we look closely at the advice and recommendations suggested by scores of published articles on re-engineering, it appears that we come across very little, if anything, that is new. Practically every recommendation made can thus be found as a part of one or another improvement program of the past. To make our case convincing, we list below some of the most common pieces of advice or so-called 'special considerations' for accomplishing re-engineering. One may quickly note that
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most of these items are merely slightly varied versions of the decades old industrial engineering [IE] techniques and their related programs [1]. I. Challenge old assumptions, and discard the old rules. Ignore past constraints whether real or imagined. Eliminate each and every barrier from the thought-process of the redesign team. 2. Top management must defend the redesign, overcome urgencies as and when they arise, and continuously keep up the pressure for moving the project forward. Using open communications they should also maintain a strong commitment to the projects' overall implementation. All of this requires that the company president himself/herself define a clear and healthy vision for the organization's future. 3. There should be no room for speculating about decisions. The redesign effort must include major steps, substeps, target dates, resource requirements, assigned responsibilities and progress milestones. 4. Focus must be on simplification of tasks. Eliminate all unnecessary activities, transport tasks, forms, reports, etc. Any activity that does not add customer-value in real time should be eliminated. The total focus must be on doing things faster and better. The company must not allow lengthy delays, duplication of functions, underutilization of costly technologies, or less-than-effective communication. On the other hand, a 'Sledge-hammer' treatment rarely obtains the desired results. Many programs of the past, such as TQM, JIT, Total Productive Maintenance (TPM) [25], Kaizan (a Japanese word for 'incrementalism') [26], CIP, etc. may prove helpful in providing seleted improvements in an efficient manner. 5. Put decision-making at places where the tasks get accomplished, but build controls within each of the processes. Exceptions may be handled by senior managers. In this way, the organization becomes flatter, and bureaucracy and tardiness may be kept at lower levels. In addition, managers can begin to serve primarily as facilitators and supporters of the employees. 6. Do not use information technology (IT) simply to modify the old processes. Rather, use it more for creative redesign of existing processes to achieve greater results. Tinkering at the margins can indeed be wasteful. IT personnel should possess a mindset that they are data-managers, and not the custodians of MIS. IT specialists, when placed under operations, have been found to be the 'locomotives' of success, specially in relation to re-engineering projects. IT need not be the core component of each and every re-engineering project. Rather, it should be used only when it augments flexibility, improves communications across departments, and integrates diverse functions. Particularly, IT may be used for promoting centralization with the help of databases, telecommunication networks, and standardized processing systems. The acid test for using IT should be whether it can generate sufficient savings relative to its costs. 7. Cross functional re-engineering teams must include members from each group of relevant stakeholders--re-engineered processes, marketing, customers, IT, and engineering. This team may be chaired by a senior manager from another process, who should also act as a sponsor and facilitator of the project. 8. Plan the implementation steps in detail, and try a prototype first. The prototype should be able to achieve the planned objectives. During implementation, a process map can be of great help to the project team, as it clearly exhibits all the critical steps (components), user requirements, and the company's overall objectives. Persons on the line should implement the redesign effort with a focus on the key initiatives; otherwise, success may remain illusive. It should also be noted that there are no customers for the individual activities (functions); they buy only the processes' finished outputs. 9. For re-engineering to be effective, the organization should make a 'clean slate' transformation of the six major management levers--structures, skills, IT, roles, incentive/rewards, and shared values. In this regard, the managers must identify all linkages among all projects being undertaken. In addition, they must be able to resolve all major issues and conflicts prior to moving forward on redesigns. Undoubtedly, before making any major investments, they must develop reliable cost/benefit analyses for each of the proposed projects, as well as for the overall re-engineering effort. 10. Data must be regularly collected on selected performance measures. Cross-functional teams should pool the information together and follow up on emerging trends and implications.
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Employees must be involved in developing these performance measures, which must then be used as the basis for incentives and rewards. 11. Scenario analysis can be very helpful in the redesign of business processes. It may expose hidden uncertainties. For example, the sudden emergence of FAX technology discouraged companies planning to provide zap-mail. Scenario analysis helps to identify early warning signals relevant to redesigns, since it focuses on future possibilities and feasible strategic responses. During the analysis phase, senior managers can express their concerns, examine related issues, and may be able to eliminate possible hidden risks [14]. 12. The current business environment, is in many ways, discontinuous, and can thus only be dealt with via discontinuous strategies. These, in turn, emerge from the creativity of the employees themselves. Single interventions may thus not create a major change in performance, suggesting that managers work on multiple initiatives to cover all relevant aspects of the situation. They must also establish the climate--'Change is the way of life.' In such an atmosphere, companies cannot avoid investing in the retraining of their employees. At the same time, it is important to encourage employees towards self-development. Generally, people do not internalize the results of new programs such as re-engineering unless and until they actually experience them. Organizations should therefore seek to build a casebook of successful (and unsuccessful) projects over time. LITTLE NEW IN SUCCESS FACTORS Re-engineering, like any other program of the past, is supposed to focus on specific goals and objectives. Re-engineering procedures are not meant to simply control operations. Rather, the staff must be allowed to use discretion in providing customized services or in acquiring unique resources. Re-engineering thus directs companies to focus on those processes that can contribute to higher customer value and a larger competitive advantage [27]. Like all other programs, success in re-engineering requires that senior managers invest 50% or more of their time and effort into it. Without aggressive leadership, the psychological and political disruptions can quickly sabotage any re-engineering project. Right at the start, top management must therefore declare that the company shall seek to act on the recommendations of the redesign team. They may also emphasize (to the extent possible) that jobs will be protected as a result of expected expansion (or other changes) in business. Further, managers should pledge to relinquish authority, delegating it to those persons implementing the project's recommendations. For example, after a logistic process has been re-engineered with IT, the affected employees should be able to make decisions independently. If the organization still requires its managers to sign off on purchases and requisitions, for example, then the whole of its re-engineering effort would appear to be undermined [2, 28]. Again, like other programs, re-engineering dictates that, for success, the organization must be able to develop unique resources [20]. That is to say, competitors should not be able to duplicate them easily, or at reasonable cost. Such competencies might include specially developed equipment, superior skills of employees, a sequence of small but complex changes (i.e. CIP), and/or a large number of socially complex but business-facilitating behaviors among employees. The company must concentrate on broad-based resources that can simultaneously affect multiple functions and a variety of processes; otherwise, the overall impact will likely remain marginal. In addition, before starting the re-engineering process, managers must fully understand both the upstream and downstream linkages among all processes. They also need to verify whether or not the redesigned process(es) will be compatible with all other existing activities. As with similar organizational efforts, re-engineering programs also stress the importance of quantitative targets for making improvements. While little or no detailed analysis may be made at the initial or earlier stages, rather educated guesswork and judgment should suffice. Focus must constantly be on how the customer would benefit, while not allowing the staff to get lost in details. Like virtually every other improvement program, re-engineering attempts to realign an organization's six core constituents--0) roles and responsibilities, (ii) measurements and rewards, (iii) organizational structures, (iv) information technology, (v) skill levels and their mix, and (vi) the shared value-base. It also attempts to identify the breadth levers (essential for value-creation) such as elimination of errors and delays between functions, elimination of problems caused by
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upstream activities, and integration of steps (tasks) spanning several business units of the company or its partners. In the tradition of past programs, re-engineering uses performance measures that are consistent with its goals. These can be non-financial measures with a focus on the operational characteristics of the processes, or, say, benchmarking at the design phase. Senior managers should celebrate successes in an attempt to reinforce employee accomplishments. Sweet memos and slick videos can 'turn off' the employees from more enthusiastic participation in any re-engineering effort. Companies should, instead, hold open meetings, and thus provide a forum for all to voice concerns and receive explanations on any aspect(s) of the redesign process. These types of actions have been judged to be very beneficial for implementing any type of change, and would appear to be particularly appropriate here. Briefly, then, initiatives that appear to facilitate success in a wide variety of projects/undertakings are (1) the use of 'head' for understanding the rationale for change; (2) use of 'heart' to internalize ideas and help ensure employees who are committed emotionally to the new vision; and (3) use of 'hands' to acquire new skills and to realize the vision. And to do all this, companies must continuously seek to involve employees and managers in generating and implementing ideas for change.
SUCCESS STORIES In the following pages, the authors summarize more than a score of published success stories of re-engineering projects undertaken by a diverse group of companies during the last seven years (Table 1). The columns of the table provide, from left to right, the name of the company, key problems of the past, actions taken as a result of re-engineering, and the results obtained. The reader should be able to quickly assess that no two situations have used the same, or even similar, inputs, or similar implementation steps. Even the success factors for each of these caselets are varied, but not novel as compared to those of past improvement programs (as we have suggested earlier in the paper). It is important to note that none of the re-engineering efforts in Table 1 can be viewed as 'exactly alike'. Further, one can safely say that a large majority of these companies did not make use of information technology as the core component of its redesigned processes. However, all of them did, in fact, designate their efforts as re-engineering. Some just added linking mechanisms to smoothen the flows, while some focused on eliminating unnecessary activities. Further, a few streamlined their reporting and logistical activities, while some others focused on job redesign, retraining of employees, and on the realignment of reward systems. Still others realigned their processes within chosen market segments, while a few upgraded machinery and then redesigned their parts, and others simply focused on identifying new products. One company used game-playing to motivate its employees. Several employed process maps to identify gaps in their processes and then tried to fill those gaps, while a couple of organizations redesigned all steps of their acquisition process. One company redesigned its products with a focus on accessories for which customers were willing to pay. Others actually redesigned all steps of their selling process to help match customer expectations. Of course, a few combined information technology and communication systems by developing common databases and linking their departments to a single database. Some generated creative printouts and reports, which appealed to both users and customers, while a couple of companies added expert systems to support field service personnel and/or service representatives. From this analysis, it would appear that anything capable of improving an organization's operations can be considered as some form of re-engineering project (effort).
WHY H I G H F A I L U R E RATES? If a re-engineered process cannot truly benefit the organization's customers, then those efforts and expenses made by the company would clearly be less than worthwhile. For example, a company may spend millions on the retraining of its sales representatives, providing them with all the
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appropriate equipment and support systems, yet sales will not improve if most of its customers had been simply looking for lower prices. Consultants often recommend large investments in information technology for upgrading or automating old work-methods. Unfortunately, though, a large majority of such efforts have resulted in some serious failures I11]. For example, at times, employees may be asked to use too much of the data generated by an IT effort. They then fail to understand why all these data must be collected and analyzed. And, it is well-known that excessive data can confuse employees and may thus provide little leverage to customer value [12]. Due to radical changes that may be involved, re-engineering projects can often be quite risky. Failures may be caused, for example, by the overconfidence or intellectual arrogance of managers. Terminating a re-engineering project prematurely can certainly be an invitation to disaster since the successful implementation of such projects requires long and sustained efforts within potentially turbulent environments. Further, excessive resistance by employees can easily cause a weakening of managerial determination and even the gradual loss of their commitment. Radical changes invariably create political risks for management, leading, for example, threatened groups of employees to engage in subversive tactics. In summary, a re -engineering project cannot be planned and accomplished in simple, well-defined steps. It must be a systems type effort; and even, then, there is no certainty as to the quality of expected results. Most often, redesign is undertaken in some type of crisis atmosphere, e.g. in the face of uncertainties about the future, customers, technologies, regulations and/or the inherent future capabilities of the company itself [29]. Under such conditions, there is a high probability of management ignoring employee concerns, and possibly imposing new work methods and higher productivity requirements. Undoubtedly, such attempts are not effective, leading to failure rates as high as 80% [16]. In other respects, if re-engineering efforts are too narrow, covering only a small percentage of overall production costs, the gains would remain negligible. On the other hand, too broad an effort may get spread too thinly and, in the process, become lost. Management should therefore concentrate on but two or three initiatives that realistically promise high customer-value. Otherwise, the company will likely experience some form of change failure. In theory, most re-engineering solutions look attractive, but often cannot be easily or fully implemented due to their complexity and excessive cost. Often, for example, the IT group fails to grasp the business vision of senior management, and, as a result, cannot deliver the technical systems and support needed to achieve the envisioned results. Such failures can be avoided, however, if IT personnel are more closely guided by business managers at each stage of re-engineering effort. Failures do occur, such as when companies streamline their departments rather than the business processes themselves. Factually, managers fail to re-engineer the contact points between adjacent functions simply because redesigning interfaces is hard as well as extremely risky [20]. Disastrous results can thus be avoided if managers do not seek to 'squeeze out' the targeted processes by force. Before terminating any process, they should therefore have a clean strategic vision, and appropriate supporting, implementable plans [21].
THE F U T U R E For the future, the promoters of re-engineering are expecting that projects be able to help companies in revolutionary ways such as: • • • •
product procurement triggered by data collection at points of sale; assessment of product manufacturability in development stages by expert systems; integration product-design and system-design databases; wireless connection of salesforce and field representatives to control offices and integrated data bases; and • provision of inherent field services and maintenance advisory services to customers by connecting them to dedicated on-line expert systems.
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Giving less consideration to such efforts, Gemini Consulting Co. [21] is now offering a new program referred to as 'transformation,' which they claim is much superior to re-engineering. They suggest that their new program (methodology) will help companies in reframing their future visions; and in renewing, revitalizing and restructuring. To make their vision prevail, companies will have to incorporate this vision into their performance measurements, and then use a balanced score-card with certain measures that envelope the organization's financial goals as well as the employees' satisfaction. In turn, these measures would attempt to reward employees for acquiring more skills and for developing closer relations with suppliers, company partners, and with customers. Incidentally, one can safely gauge that to implement such a 'new' form of re-engineering a company may need a large number of consultants for long periods of time, during which there could be significant disruptions in operations. In addition, recently, some consulting groups have begun suggesting that CEOs should use coaches (to be provided by consulting companies) for supporting and facilitating the jobs of their senior management teams. The question then arises--Where does it all end? What will the CEOs do? This returns us to our original premise: that these efforts appear to be but ongoing variations of earlier organizational change projects. The inventors (initiators) of re-engineering [11, 9] are 'computer guys.' Their focus all along has been on the use of IT to replace humans from as many work-elements of organizational processes as possible. In doing so they have largely ignored the needs, interests, desires and fears of the organization's employees [30]. Many organizations thus now view re-engineering as a 'slash and burn' exercise in cost-reduction [31]. American Quality Digest, in its January 1995 issue, published an article suggesting that re-engineering is already on its way out [32]. Re-engineering, to most business people in the U.S., has apparently become a work that stands for restructuring, layoffs, and all-too-often failed change programs [33]. One can safely say that, in the future, only some uninformed U.S. managers facing insurmountable operational and/or profit problems may opt for re-engineering as their last hope. However, a few promising areas for application of re-engineering could include business logistics, materials management, purchasing, and shop-floor planning; i.e. those places where IT power may sometimes be successful in replacing a large number of clerical and supervisory staff. We sincerely believe that, henceforth, growth markets for re-engineering will lie outside North America; e.g. in Latin and Central America, Southern Europe, the Middle East, and Australia. Whereas, South-East Asian nations and Pacific-Rim countries now appear to be following the lead of Japan, as they gradually move away from quick moving fads in American management. REFERENCES 1. Hales, H. L. and Savoi, B. J., Building a foundation for successful business process re-engineering. Industrial Engineering, September 1994, pp. 17-19. 2. Garvin, D. A., Leveraging processes for strategic advantage. Harvard Business Review, September-October 1995, pp. 79-85. 3. Dixon, J. R., Arnold, P., Heinecke, J., Kim, J. S. and Mulligan, P., Business process re-engineering: Improving in new strategic directions. California Management Review, Summer 1994, pp. 93-108. 4. Aggarwal, S., Emerging hard and soft technologies: Current status, issues, and problems. International Journal of Computer Applications in Technology, 1995, 8/2, 48-60. 5. Billesbach, T. J., A study of the implementation of just-in-time in the United States. Production and Inventory Management Journal, (3rd Qtr. 1991), 1-4. 6. Kalinosky, I. S., The total quality system--going beyond ISO-9000. Quality Progress, June 1990, pp. 5~53. 7. Schroeder, D. M. and Robinson, A. G., America's most successful export to Japan: Continuous improvement programs. Sloan Management Review, Spring 1991, pp. 67-81. 8. Arend, M., Do you really need to re-engineer?. ABA Banking Journal, Dec. 1993, pp. 46-50. 9. Davenport, T. H. and Stoddard, D. B., Re-engineering: Business change of mythic proportions. MIS Quarterly, 1994, 18, 121-127. 10. Stewart, T. A., Re-engineering, the hot new management tool. Fortune, August 23, 1993, pp. 41-48. 11. Hammer, M., Re-engineering work: Dont automate, obliterate. Harvard Business Review, July-Aug. 1990, pp. 104-112. 12. Steven, A. L., Critical success factors for re-engineering business processes. National Productivity Review, Autumn, 1994, pp. 557-568. 13. Harrison, B. and Pratt, M. D., A methodology for re-engineering business. Planning Review, March-April 1993, pp. 6-11. 14. Clemons, E. K., Using scenario analysis to manage the strategic risk of re-engineering. Sloan Management Review, Summer 1995, pp. 61-71 15. Cooper, R. and Marcus, M. L., Human re-engineering. Sloan Management Review, Summer 1995, pp. 39-50.
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16. Hall, E. A., Rosenthal, J. and Wade, J., How to make re-engineering really work. The McKinsey Quarterly, No. 2, 1994, pp. 107-128. 17. Vasilash, G. S., Re-engineering: Your job may depend on it. Production, June, 1993, pp. 9-16. 18. Martinez, E. V., Successful re-engineering demands I. S./Business partnership. Sloan Management Review, Summer 1995, pp. 51-60. 19. Ballou, R. H., Re-engineering at American Express: The travel services group's work in progress. Interfaces, May-June, 1995, pp. 22-29. 20. Holland, D. and Kumar, S., Getting past the obstacles to successful re-engineering. Business Horizons, May-June 1995, pp. 79-85. 21. Editors of Economist, A brief theory of everything. The Economist, May 6, 1995, p. 63. 22. Offodile, O. F., Machine-grouping in cellular manufacturing. Omega, 1993, 21, 35-52. 23. Hyer, N. L., The potential of group technology for U.S. manufacturing. Journal of Operations Management, 1984, 4, 183-202. 24. Caldwell, B., Missteps, miscues. Information Week, June 20, 1994, p. 52. 25. Nakajima, S., TPM Development Program: Implementing Total Productive Maintenance, Productivity Press, Portland, OR. 1990. 26. Imai, M., KAIZAN: The Key to Japan's Competitit,e Success, Random House, New York, 1986. 27. Manganelli, R. L., Re-engineering: It's not a silver bullet. Journal of Business Strategy, Nov.-Dec. 1993, p. 45 + . 28. Martinez, E., Avoiding large-scale 1/T project failures: The importance of fundamentals'. Project Management Journal, June 1994, pp. 17-25. 29. Reger, R. K., Mullane, J. V., Gustafson, L. T. and DeMarie, S. M., Creating earthquakes to change organizational mindsets. Academy of Management Executive, 1994, g, 31-46. 30. Kleiner, A., The battle for the soul of corporate America. Wired, August 1995. 31. Editors of The Economist, Hammer defends re-engineering. Economist Nov. 5, 1994. 32. Katz, R., Is re-engineering already dead? American Quality Digest, Jan. 1995. 33. Davenport, T., Why re-engineering failed: The fad that forgot people. Fast Company (premiere issue), Jan. 1996.
Socio-Econ. Plann. Sci. Vol. 32, No. 2, pp. 155-167, 1998
Pergamon PII:
S0038-0121(97)00006-2
© 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0038-0121/98 $19.00 + 0.00
Re-engineering: a Breakthrough or Little New? SUMER AGGARWAL Suffolk University, Boston, MA 02108, U.S.A.
Abstract--Thi paper s first provides various definitions of the term re-eng&eering. Next, it explains why companies undertake re-engineering and what factors represent major inputs to the process. An attempt is made to provide a sequence of steps that must be gone through for implementing any re-engineering project. In addition, the paper highlights those key risks and problems that cannot be avoided during its execution. In the end, the authors argue that re-engineering includes little new; rather, most of its constituents can be found in organizational improvement programs of the past. Even the success factors for re-engineering are not much different from those of earlier programs. The paper also provides a tabular analysis of 25 published re-engineering caselets in support of the thesis that re-engineering is not new, but can be any combination of action-items designed to improve the profitability and long-term survival of a company. Finally, a few conjectures about the future of re-engineering programs are outlined. © 1998 Elsevier Science Ltd. All rights reserved
Re-engineering has been p r o m o t e d as the redesign o f core business processes for b r e a k t h r o u g h gains in cost, service and/or cycle-time. By definition, a business process is a set o f activities designed to fulfill the needs o f an internal or external customer. The improvement provided by re-engineering might include elements such as fast response in logistic systems, closing o f c o m p a n y accounts in one day, accelerated p r o d u c t development, etc. A business process is basically a patterned a p p r o a c h to conduct business. The processes invariably transcend departmental and functional borders. In any c o m p a n y , generally five or six processes are critical. F o r example, they could be material procurement, customer relations, p r o d u c t leveraging, solutions integration, etc. Re-engineering is supposed to start with a new vision, new mission and new customers. If there is no new vision, then re-engineering efforts m a y prove worthless. Re-engineering generally involves dealing with a u t o m a t i o n and systems, and with a change in vision normally leading to a change in applications and infrastructures. A few authors, on the other hand, suggest that there is nothing new a b o u t re-engineering; rather, it is, in spirit, the same as earlier creative m a n a g e m e n t efforts. Re-engineering projects are b r o u g h t a b o u t as a coincidence o f factors such as emerging technologies and evolving customer demands for new products. Use o f information technology (I.T.) in the redesign o f business processes is but one aspect, although re-engineering seems to emphasize the use o f information technology in applying industrial engineering techniques [1]. On the other hand, some consultants [2] define re-engineering as process management. F o r example, a pharmaceutical c o m p a n y can look at a healthcare system as a bundle o f care delivery, care management, and care coverage processes. Further, they m a y emphasize that re-engineering can be used to obtain convergence a m o n g strategic direction, organizational design, staff capacity and the coverage processes. It is important to note that every little change is likely not re-engineering, as this effort should focus on key processes. Further, there can be substantial trial and error prior to the final redesign. There are always significant risks, and, o f course, there are expectations for higher payoffs as well. In m a n y past cases, re-engineering objectives have remained rather fuzzy, often lacking measures in relation to new competitive priorities [3]. F r o m the above discussion, one can confidently conclude that there is no single and universally accepted definition o f re-engineering. Various consulting groups have offered their own limited 155
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views of the term, as they utilize it. We attempt to provide an overall picture of re-engineering with the following five specific viewpoints that seem to be most prevalent. 1. It is a redesign of core business processes for breakthrough gains. 2. It starts with a new vision, new mission, and new customers. 3. It is brought about as a coincidence of emerging technologies, and evolving customer demands for new products. 4. It emphasizes the use of information technology (I.T.) [4] in applying routine industrial engineering techniques. 5. Any little change is not re-engineering if it does not help to manage a process efficiently. Re-engineering, as defined in the literature, appears to be another 'new' program such as productivity improvement, Just-in-Time (JIT) [5], Total Quality Management (TQM) [6], Continuous Improvement Program (CIP) [7] and several others that have been aggressively promoted by consultants during the last 25 years. U.S. companies have spent billions of dollars on each of these programs. Of course, there have been some successes, as reported on in the management literature by various consulting groups. Side-by-side, 70% or more of the companies could not obtain their money's worth in return. However, it appears that very little gets published about any of these failures or disappointments as the senior executives who supported the programs simply do not wish to publicize their mistakes and shortcomings. Secondly, the consultants (authors) who benefit financially from delivering these programs to companies do not wish to tarnish their personal reputations, fearing loss of future earnings. This paper is based on a critical analysis of more than 25 published studies. In so doing, it attempts to make a realistic assessment of 're-engineering' which has been one of the 'hottest' management programs of the last five to seven years.
MOTIVATIONS FOR R E - E N G I N E E R I N G Re-engineering projects may be undertaken for a variety of reasons. But, the most important ones are: (a) fear of loss of a dwindling market share, (b) wish for excessive profits, (c) urgent need for faster product development and/or, (d) control of exploding overheads. Unlike the past, companies now need to focus more on quality, innovation, and service; with a bit less emphasis on cost (but, of course, not entirely so). Gaps in customer satisfaction may suddenly appear due to a variety of reasons such as extremely fast expansion of company business, turmoil in industry due to deregulation, or customers looking for the company to become more global in its outlook. Managers may thus target business processes for re-engineering when they come across (i) customer complaints, (ii) opportunities available with vendors, (iii) a possibility of value-addition to company products/services with acquisition of unique capabilities, and/or (iv) a chance for competing on price or with a unique product. At times, re-engineering may be undertaken for very specific objectives, such as reduced cycle-time of product development, a sudden leap in technology for large profits, or reduction in head count. Without a specific milestone, however, re-engineering projects may remain fuzzy, or even result in some form of disaster [8]. Often, re-engineering projects are undertaken in the hope of taking a leap over the competition. The most pressing circumstances or situations begging for re-engineering projects, could be one, or a combination of, two or more of the following unexpected displacements [9]: • • • • • •
Customer service has fallen behind the competition. The product-development cycle-time has become much longer compared to industry average. The nature and core elements of competition have shifted far away from those of the past. The information and communications technology of the industry is changing at a rapid pace. The non-value overheads are growing exponentially. Error and defect rates have been rising beyond tolerable levels.
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• The profit squeeze has become unacceptable. • Production costs are rising faster than what the market can bear. • The company is experiencing loss of flexibility in terms of product-mix and volume-mix.
INPUTS Executive vision and aggressive leadership are the basic inputs to re-engineering. Managers pursuing re-engineering must thus remain committed and consistent, while trying to persuade others, who might prefer the status quo. Re-engineering may require hefty inputs in employee training and in information technology. The CEO and top managers must therefore be able to generate sufficient courage and perseverance to implement redesigns in the face of potentially stiff opposition and resistance from both within and outside the organization. Re-engineering requires committed and empowered employees in that success of a project depends upon their knowledge, skills, creativity and openness to change. If a focus is kept on quality employees, then quality, productivity, and flexibility follow suit almost automatically. Team leaders must be able to think for themselves, engage in proactive communications, and promote interdependence among their team members. Further, re-engineering requires an almost crisis atmosphere for bringing about change. In crisis, for employees, the prevailing need for psychological safety may turn into anxiety as employees may not possess the skills needed for change, or may even be afraid of failure in seeking and acquiring new skills. Employees are often forced to think deeply in 'unfreezing' their attitudes towards change. In a way, re-engineering requires preparation for discontinuous improvement. As might be expected, a crisis can be imposed by outside forces, or may be constructed internally by upper management. Importantly, any change effort requires an intervention. These, in turn, target the work-processes, managers and individual contributors. Interventions may be considered something like earthquakes, which generally do not cause total destruction of the existing structures. Interventions should be performed gradually, but be able to promote revolutionary (as opposed to evolutionary) change. Another essential ingredient for re-engineering is championing by a business manager. Many times, the CEO himself/herself may have to assume the role of a champion. However, the consultant's role in re-engineering projects must be limited to advice, technical expertise and training. Consultants may also be used as outsider scorekeepers for purposes of monitoring the progress of a project. In most cases, up to 5% of the total budget of the re-engineering project will have to be set aside for technical training of employees in areas like process-analysis, teamwork, and essential new skills.
IMPLEMENTATION STEPS It is generally accepted that there is no single step-by-step methodology for accomplishing the re-engineering of an organization. Each of the published re-engineering efforts indicates a somewhat different mix and sequence of steps. However, there is a common thread running through most of these efforts [1-3, 10-21]. In the following, the authors of this paper attempt to provide a list of what appears to be the 'essential steps' and arrange them in a rough sequence, one which seems to have prevailed in a majority of projects. It may also be noted that none of the projects made use of each and every step. At times, the re-engineering team merged two or more steps into a single major step. Hence, the following list and sequence may be treated as but a rough guideline.
Step 1 'Think big' is the first step to re-engineering. Expect changes in the organization's structure, management system, job-designs and rewards. All parts and systems within the company should be coordinated.
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Step 2 Appoint a Steering Committee of those 'best' managers who would be responsible for overseeing the re-engineering project. This committee should outline a specific strategy and set goals for the company. They must focus on the value that the company is to deliver to the customer. Step 3 This committee must also promote a sense of urgency. In this regard, the team members may be urged to talk to customers about the competition. However, they must first concentrate on the most critical processes and then on setting some macro-targets. They must also announce change initiatives and widely disseminate that information. They should develop benchmarks for individual processes. In addition, they must also prepare their employees for impending changes by communicating details to them about the competitive situation, re-engineering concepts, data collection requirements, survey feedback on culture, as well as other possible problems. Step 4 The team also needs to specify the relevant mission and goals/objectives, as well as the customers of the process outputs, and then map the process flow activities in some detail. Next, the team should establish baselines for volumes, cycle times, defect rates, and costs. Baseline analysis almost invariably provides early successes and larger cash flows. Step 5 As in classic marketing, the team must start with the needs of the customer, and redesign the process from the outside-in. In this effort, they may use customer focus groups to pinpoint critical redesign features. Their focus must then be on those points of the process that can provide the most leverage. Before finalizing the redesign, they must be able to visualize the future shape of the process. They also need to document each and every helpful idea and communicate same to the line managers. In this way, they can help the employees to better understand the redesign and, as a result, help promote greater acceptance. During redesign, the team must constantly look for high potential opportunities while seeking to eliminate problems of the past. Step 6 Baselining, visioning, and redesign may take three to six months. Next, the team must consolidate all parts of the analysis and develop a comprehensive implementation plan that integrates the changed processes and the supporting new elements into the total system. At this stage, the team should seek out relevant information technology and related projects. For each of these projects, it would be useful to prepare a justification for their capital expenditures. It may be noted that a variety of companies have attained excellent results from re-engineering efforts by introducing cellular technology [22], group technology [23], JIT, TQM etc. Importantly, though just 'throwing in' IT may not generate the best solution. By definition, re-engineering is designed to do the most with the least. Also, recall that dependence on cumbersome bureaucratic processes and technologies may not be of much help. In fact, in some cases, they can bring confusion and less-than-efficient expenditures. Step 7 At this stage, the focus must move to implementation of all activities and aspects of the redesigned processes. Here, the line managers are made fully responsible for the timetable and the budgets, while the employees are asked to try their own new tasks and identify relevant checkpoints. At the same time, management must set up training schedules, reward systems, and career-paths that will reinforce support for the redesigned processes on a continuing basis. In actual practice, they would find that a top-down approach works best for setting targets, but that a bottom-up approach is more appropriate for implementation. However, the implementation process must be kept simple. There should be no hurry in working out details of the redesigns, especially since there are instances in which the process itself may have to be eliminated. Step 8 If outside consultants are used, then management should insist on savings sufficient to cover costs for all stages of the re-engineering process. In this regard, the company should exercise close control over the costs of consultants and information technology, as the former alone, may easily exceed $250 000 per month, and, at times, IT costs can truly get 'out of hand'. The company must therefore insist that system users generate and collect the information supporting their key needs, and then process it for value-adding functions. Clearly a hodgepodge/patchwork of reports must not be allowed to occur. Step 9 Progress on re-engineering efforts must be measured and correlated with the organization's envisioned strategic objectives. At times, the core processes may be allowed to transcend budgetary reviews and strict accountability, particularly when they cross departmental lines. Collection of performance data is not only essential for judging how re-engineering is supporting the business goals, but also for evaluating the organizational personnel.
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PROBLEMS Re-engineering of processes is virtually always accompanied by personnel layoffs. Employees also feel threatened (sometimes, extremely so) by impending changes. Re-engineering can thus bring about a serious disruption of existing structures, methods, and systems; and such a situation can surely cause pain and agony to many employees. As fear, resistance, and cynicism arise, employees can respond by rejecting new ideas, as well as resisting and undermining the proposed changes. Almost without exception, re-engineering projects involve substantial costs. On the other hand, a managerial focus on cost reduction without some increasing value for the customer can lead to serious morale, communication, and turnover problems. Re-engineering efforts may provide dramatic improvements early on, but such gains can slowly disappear. For example, one computer company quickly cut its process costs by 34%; its operating income never improved. Similarly, an insurance company shortened its claim processing time by 44%, but yet its profits declined. In this regard, McKinsey and Co. indicate they found that in 11 of 20 re-engineering cases studied, the earnings before taxes improved by less then 5% [16]. If numerous re-engineering projects are initiated side-by-side, they may have overlapping goals, as well as a competition for existing resources. It may, for example, lead to too many meetings, excessive jargon, and conflicting priorities, generating a loss in focus. In addition, re-engineering may consume significant capital, enthusiasm, and entrepreneurial spirit. And, if this continues through several projects, the company may not have sufficient resources for additional projects, for eliminating crucial deficiencies, or even to meet unexpected competitive challenges. After the redesign process is complete, many senior employees may lack the skills needed to implement and control the new processes. They may therefore attempt to defend the value of their expertise aggressively, in order to save their jobs, status and empowerment. Eventually, a good number of senior executives may thus be replaced as has happened at many organizations such as, Smith-Kline, Beecham, and Pepsi. As might be expected, re-engineering is very risky, with success never really assured. Thus, if the redesign effort is not fully accomplished, the business may be lost forever. On the other hand, if major changes are made, the company may be compelled to write off huge investments for retraining, hardware, systems development, etc. In addition, there is the accompanying risk of team members leaving or being 'let go' [24]. The most common problem in completing a redesign is that business managers often do not approve IT projects. This, despite the fact that they are the critical inputs to newly developed operating systems. Such input projects could be in the form of the cleaning up of past customer data, retraining of operators in new technologies and methods, and developing technical coding standards. When a re-engineering project is allowed to extend beyond two years, the interest of team members may become diluted. Further, the high visibility of re-engineering projects alone makes them risky, since employees will likely expect significant payoffs from them. In addition, an inherent complexity, and a need for excessively close coordination for accomplishing the redesigned operations can often be stressful for those managers and team members responsible for the effort. Achieving real success in re-engineering efforts can, however, easily take two to three years. Not unexpectedly, delayed results may cause many employers and other stakeholders to become impatient. This suggests that managers must be fully prepared to overcome and diffuse tense situations.
ALL THE OLD ADAGES If we look closely at the advice and recommendations suggested by scores of published articles on re-engineering, it appears that we come across very little, if anything, that is new. Practically every recommendation made can thus be found as a part of one or another improvement program of the past. To make our case convincing, we list below some of the most common pieces of advice or so-called 'special considerations' for accomplishing re-engineering. One may quickly note that
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most of these items are merely slightly varied versions of the decades old industrial engineering [IE] techniques and their related programs [1]. I. Challenge old assumptions, and discard the old rules. Ignore past constraints whether real or imagined. Eliminate each and every barrier from the thought-process of the redesign team. 2. Top management must defend the redesign, overcome urgencies as and when they arise, and continuously keep up the pressure for moving the project forward. Using open communications they should also maintain a strong commitment to the projects' overall implementation. All of this requires that the company president himself/herself define a clear and healthy vision for the organization's future. 3. There should be no room for speculating about decisions. The redesign effort must include major steps, substeps, target dates, resource requirements, assigned responsibilities and progress milestones. 4. Focus must be on simplification of tasks. Eliminate all unnecessary activities, transport tasks, forms, reports, etc. Any activity that does not add customer-value in real time should be eliminated. The total focus must be on doing things faster and better. The company must not allow lengthy delays, duplication of functions, underutilization of costly technologies, or less-than-effective communication. On the other hand, a 'Sledge-hammer' treatment rarely obtains the desired results. Many programs of the past, such as TQM, JIT, Total Productive Maintenance (TPM) [25], Kaizan (a Japanese word for 'incrementalism') [26], CIP, etc. may prove helpful in providing seleted improvements in an efficient manner. 5. Put decision-making at places where the tasks get accomplished, but build controls within each of the processes. Exceptions may be handled by senior managers. In this way, the organization becomes flatter, and bureaucracy and tardiness may be kept at lower levels. In addition, managers can begin to serve primarily as facilitators and supporters of the employees. 6. Do not use information technology (IT) simply to modify the old processes. Rather, use it more for creative redesign of existing processes to achieve greater results. Tinkering at the margins can indeed be wasteful. IT personnel should possess a mindset that they are data-managers, and not the custodians of MIS. IT specialists, when placed under operations, have been found to be the 'locomotives' of success, specially in relation to re-engineering projects. IT need not be the core component of each and every re-engineering project. Rather, it should be used only when it augments flexibility, improves communications across departments, and integrates diverse functions. Particularly, IT may be used for promoting centralization with the help of databases, telecommunication networks, and standardized processing systems. The acid test for using IT should be whether it can generate sufficient savings relative to its costs. 7. Cross functional re-engineering teams must include members from each group of relevant stakeholders--re-engineered processes, marketing, customers, IT, and engineering. This team may be chaired by a senior manager from another process, who should also act as a sponsor and facilitator of the project. 8. Plan the implementation steps in detail, and try a prototype first. The prototype should be able to achieve the planned objectives. During implementation, a process map can be of great help to the project team, as it clearly exhibits all the critical steps (components), user requirements, and the company's overall objectives. Persons on the line should implement the redesign effort with a focus on the key initiatives; otherwise, success may remain illusive. It should also be noted that there are no customers for the individual activities (functions); they buy only the processes' finished outputs. 9. For re-engineering to be effective, the organization should make a 'clean slate' transformation of the six major management levers--structures, skills, IT, roles, incentive/rewards, and shared values. In this regard, the managers must identify all linkages among all projects being undertaken. In addition, they must be able to resolve all major issues and conflicts prior to moving forward on redesigns. Undoubtedly, before making any major investments, they must develop reliable cost/benefit analyses for each of the proposed projects, as well as for the overall re-engineering effort. 10. Data must be regularly collected on selected performance measures. Cross-functional teams should pool the information together and follow up on emerging trends and implications.
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Employees must be involved in developing these performance measures, which must then be used as the basis for incentives and rewards. 11. Scenario analysis can be very helpful in the redesign of business processes. It may expose hidden uncertainties. For example, the sudden emergence of FAX technology discouraged companies planning to provide zap-mail. Scenario analysis helps to identify early warning signals relevant to redesigns, since it focuses on future possibilities and feasible strategic responses. During the analysis phase, senior managers can express their concerns, examine related issues, and may be able to eliminate possible hidden risks [14]. 12. The current business environment, is in many ways, discontinuous, and can thus only be dealt with via discontinuous strategies. These, in turn, emerge from the creativity of the employees themselves. Single interventions may thus not create a major change in performance, suggesting that managers work on multiple initiatives to cover all relevant aspects of the situation. They must also establish the climate--'Change is the way of life.' In such an atmosphere, companies cannot avoid investing in the retraining of their employees. At the same time, it is important to encourage employees towards self-development. Generally, people do not internalize the results of new programs such as re-engineering unless and until they actually experience them. Organizations should therefore seek to build a casebook of successful (and unsuccessful) projects over time. LITTLE NEW IN SUCCESS FACTORS Re-engineering, like any other program of the past, is supposed to focus on specific goals and objectives. Re-engineering procedures are not meant to simply control operations. Rather, the staff must be allowed to use discretion in providing customized services or in acquiring unique resources. Re-engineering thus directs companies to focus on those processes that can contribute to higher customer value and a larger competitive advantage [27]. Like all other programs, success in re-engineering requires that senior managers invest 50% or more of their time and effort into it. Without aggressive leadership, the psychological and political disruptions can quickly sabotage any re-engineering project. Right at the start, top management must therefore declare that the company shall seek to act on the recommendations of the redesign team. They may also emphasize (to the extent possible) that jobs will be protected as a result of expected expansion (or other changes) in business. Further, managers should pledge to relinquish authority, delegating it to those persons implementing the project's recommendations. For example, after a logistic process has been re-engineered with IT, the affected employees should be able to make decisions independently. If the organization still requires its managers to sign off on purchases and requisitions, for example, then the whole of its re-engineering effort would appear to be undermined [2, 28]. Again, like other programs, re-engineering dictates that, for success, the organization must be able to develop unique resources [20]. That is to say, competitors should not be able to duplicate them easily, or at reasonable cost. Such competencies might include specially developed equipment, superior skills of employees, a sequence of small but complex changes (i.e. CIP), and/or a large number of socially complex but business-facilitating behaviors among employees. The company must concentrate on broad-based resources that can simultaneously affect multiple functions and a variety of processes; otherwise, the overall impact will likely remain marginal. In addition, before starting the re-engineering process, managers must fully understand both the upstream and downstream linkages among all processes. They also need to verify whether or not the redesigned process(es) will be compatible with all other existing activities. As with similar organizational efforts, re-engineering programs also stress the importance of quantitative targets for making improvements. While little or no detailed analysis may be made at the initial or earlier stages, rather educated guesswork and judgment should suffice. Focus must constantly be on how the customer would benefit, while not allowing the staff to get lost in details. Like virtually every other improvement program, re-engineering attempts to realign an organization's six core constituents--0) roles and responsibilities, (ii) measurements and rewards, (iii) organizational structures, (iv) information technology, (v) skill levels and their mix, and (vi) the shared value-base. It also attempts to identify the breadth levers (essential for value-creation) such as elimination of errors and delays between functions, elimination of problems caused by
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upstream activities, and integration of steps (tasks) spanning several business units of the company or its partners. In the tradition of past programs, re-engineering uses performance measures that are consistent with its goals. These can be non-financial measures with a focus on the operational characteristics of the processes, or, say, benchmarking at the design phase. Senior managers should celebrate successes in an attempt to reinforce employee accomplishments. Sweet memos and slick videos can 'turn off' the employees from more enthusiastic participation in any re-engineering effort. Companies should, instead, hold open meetings, and thus provide a forum for all to voice concerns and receive explanations on any aspect(s) of the redesign process. These types of actions have been judged to be very beneficial for implementing any type of change, and would appear to be particularly appropriate here. Briefly, then, initiatives that appear to facilitate success in a wide variety of projects/undertakings are (1) the use of 'head' for understanding the rationale for change; (2) use of 'heart' to internalize ideas and help ensure employees who are committed emotionally to the new vision; and (3) use of 'hands' to acquire new skills and to realize the vision. And to do all this, companies must continuously seek to involve employees and managers in generating and implementing ideas for change.
SUCCESS STORIES In the following pages, the authors summarize more than a score of published success stories of re-engineering projects undertaken by a diverse group of companies during the last seven years (Table 1). The columns of the table provide, from left to right, the name of the company, key problems of the past, actions taken as a result of re-engineering, and the results obtained. The reader should be able to quickly assess that no two situations have used the same, or even similar, inputs, or similar implementation steps. Even the success factors for each of these caselets are varied, but not novel as compared to those of past improvement programs (as we have suggested earlier in the paper). It is important to note that none of the re-engineering efforts in Table 1 can be viewed as 'exactly alike'. Further, one can safely say that a large majority of these companies did not make use of information technology as the core component of its redesigned processes. However, all of them did, in fact, designate their efforts as re-engineering. Some just added linking mechanisms to smoothen the flows, while some focused on eliminating unnecessary activities. Further, a few streamlined their reporting and logistical activities, while some others focused on job redesign, retraining of employees, and on the realignment of reward systems. Still others realigned their processes within chosen market segments, while a few upgraded machinery and then redesigned their parts, and others simply focused on identifying new products. One company used game-playing to motivate its employees. Several employed process maps to identify gaps in their processes and then tried to fill those gaps, while a couple of organizations redesigned all steps of their acquisition process. One company redesigned its products with a focus on accessories for which customers were willing to pay. Others actually redesigned all steps of their selling process to help match customer expectations. Of course, a few combined information technology and communication systems by developing common databases and linking their departments to a single database. Some generated creative printouts and reports, which appealed to both users and customers, while a couple of companies added expert systems to support field service personnel and/or service representatives. From this analysis, it would appear that anything capable of improving an organization's operations can be considered as some form of re-engineering project (effort).
WHY H I G H F A I L U R E RATES? If a re-engineered process cannot truly benefit the organization's customers, then those efforts and expenses made by the company would clearly be less than worthwhile. For example, a company may spend millions on the retraining of its sales representatives, providing them with all the
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appropriate equipment and support systems, yet sales will not improve if most of its customers had been simply looking for lower prices. Consultants often recommend large investments in information technology for upgrading or automating old work-methods. Unfortunately, though, a large majority of such efforts have resulted in some serious failures I11]. For example, at times, employees may be asked to use too much of the data generated by an IT effort. They then fail to understand why all these data must be collected and analyzed. And, it is well-known that excessive data can confuse employees and may thus provide little leverage to customer value [12]. Due to radical changes that may be involved, re-engineering projects can often be quite risky. Failures may be caused, for example, by the overconfidence or intellectual arrogance of managers. Terminating a re-engineering project prematurely can certainly be an invitation to disaster since the successful implementation of such projects requires long and sustained efforts within potentially turbulent environments. Further, excessive resistance by employees can easily cause a weakening of managerial determination and even the gradual loss of their commitment. Radical changes invariably create political risks for management, leading, for example, threatened groups of employees to engage in subversive tactics. In summary, a re -engineering project cannot be planned and accomplished in simple, well-defined steps. It must be a systems type effort; and even, then, there is no certainty as to the quality of expected results. Most often, redesign is undertaken in some type of crisis atmosphere, e.g. in the face of uncertainties about the future, customers, technologies, regulations and/or the inherent future capabilities of the company itself [29]. Under such conditions, there is a high probability of management ignoring employee concerns, and possibly imposing new work methods and higher productivity requirements. Undoubtedly, such attempts are not effective, leading to failure rates as high as 80% [16]. In other respects, if re-engineering efforts are too narrow, covering only a small percentage of overall production costs, the gains would remain negligible. On the other hand, too broad an effort may get spread too thinly and, in the process, become lost. Management should therefore concentrate on but two or three initiatives that realistically promise high customer-value. Otherwise, the company will likely experience some form of change failure. In theory, most re-engineering solutions look attractive, but often cannot be easily or fully implemented due to their complexity and excessive cost. Often, for example, the IT group fails to grasp the business vision of senior management, and, as a result, cannot deliver the technical systems and support needed to achieve the envisioned results. Such failures can be avoided, however, if IT personnel are more closely guided by business managers at each stage of re-engineering effort. Failures do occur, such as when companies streamline their departments rather than the business processes themselves. Factually, managers fail to re-engineer the contact points between adjacent functions simply because redesigning interfaces is hard as well as extremely risky [20]. Disastrous results can thus be avoided if managers do not seek to 'squeeze out' the targeted processes by force. Before terminating any process, they should therefore have a clean strategic vision, and appropriate supporting, implementable plans [21].
THE F U T U R E For the future, the promoters of re-engineering are expecting that projects be able to help companies in revolutionary ways such as: • • • •
product procurement triggered by data collection at points of sale; assessment of product manufacturability in development stages by expert systems; integration product-design and system-design databases; wireless connection of salesforce and field representatives to control offices and integrated data bases; and • provision of inherent field services and maintenance advisory services to customers by connecting them to dedicated on-line expert systems.
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Giving less consideration to such efforts, Gemini Consulting Co. [21] is now offering a new program referred to as 'transformation,' which they claim is much superior to re-engineering. They suggest that their new program (methodology) will help companies in reframing their future visions; and in renewing, revitalizing and restructuring. To make their vision prevail, companies will have to incorporate this vision into their performance measurements, and then use a balanced score-card with certain measures that envelope the organization's financial goals as well as the employees' satisfaction. In turn, these measures would attempt to reward employees for acquiring more skills and for developing closer relations with suppliers, company partners, and with customers. Incidentally, one can safely gauge that to implement such a 'new' form of re-engineering a company may need a large number of consultants for long periods of time, during which there could be significant disruptions in operations. In addition, recently, some consulting groups have begun suggesting that CEOs should use coaches (to be provided by consulting companies) for supporting and facilitating the jobs of their senior management teams. The question then arises--Where does it all end? What will the CEOs do? This returns us to our original premise: that these efforts appear to be but ongoing variations of earlier organizational change projects. The inventors (initiators) of re-engineering [11, 9] are 'computer guys.' Their focus all along has been on the use of IT to replace humans from as many work-elements of organizational processes as possible. In doing so they have largely ignored the needs, interests, desires and fears of the organization's employees [30]. Many organizations thus now view re-engineering as a 'slash and burn' exercise in cost-reduction [31]. American Quality Digest, in its January 1995 issue, published an article suggesting that re-engineering is already on its way out [32]. Re-engineering, to most business people in the U.S., has apparently become a work that stands for restructuring, layoffs, and all-too-often failed change programs [33]. One can safely say that, in the future, only some uninformed U.S. managers facing insurmountable operational and/or profit problems may opt for re-engineering as their last hope. However, a few promising areas for application of re-engineering could include business logistics, materials management, purchasing, and shop-floor planning; i.e. those places where IT power may sometimes be successful in replacing a large number of clerical and supervisory staff. We sincerely believe that, henceforth, growth markets for re-engineering will lie outside North America; e.g. in Latin and Central America, Southern Europe, the Middle East, and Australia. Whereas, South-East Asian nations and Pacific-Rim countries now appear to be following the lead of Japan, as they gradually move away from quick moving fads in American management. REFERENCES 1. Hales, H. L. and Savoi, B. J., Building a foundation for successful business process re-engineering. Industrial Engineering, September 1994, pp. 17-19. 2. Garvin, D. A., Leveraging processes for strategic advantage. Harvard Business Review, September-October 1995, pp. 79-85. 3. Dixon, J. R., Arnold, P., Heinecke, J., Kim, J. S. and Mulligan, P., Business process re-engineering: Improving in new strategic directions. California Management Review, Summer 1994, pp. 93-108. 4. Aggarwal, S., Emerging hard and soft technologies: Current status, issues, and problems. International Journal of Computer Applications in Technology, 1995, 8/2, 48-60. 5. Billesbach, T. J., A study of the implementation of just-in-time in the United States. Production and Inventory Management Journal, (3rd Qtr. 1991), 1-4. 6. Kalinosky, I. S., The total quality system--going beyond ISO-9000. Quality Progress, June 1990, pp. 5~53. 7. Schroeder, D. M. and Robinson, A. G., America's most successful export to Japan: Continuous improvement programs. Sloan Management Review, Spring 1991, pp. 67-81. 8. Arend, M., Do you really need to re-engineer?. ABA Banking Journal, Dec. 1993, pp. 46-50. 9. Davenport, T. H. and Stoddard, D. B., Re-engineering: Business change of mythic proportions. MIS Quarterly, 1994, 18, 121-127. 10. Stewart, T. A., Re-engineering, the hot new management tool. Fortune, August 23, 1993, pp. 41-48. 11. Hammer, M., Re-engineering work: Dont automate, obliterate. Harvard Business Review, July-Aug. 1990, pp. 104-112. 12. Steven, A. L., Critical success factors for re-engineering business processes. National Productivity Review, Autumn, 1994, pp. 557-568. 13. Harrison, B. and Pratt, M. D., A methodology for re-engineering business. Planning Review, March-April 1993, pp. 6-11. 14. Clemons, E. K., Using scenario analysis to manage the strategic risk of re-engineering. Sloan Management Review, Summer 1995, pp. 61-71 15. Cooper, R. and Marcus, M. L., Human re-engineering. Sloan Management Review, Summer 1995, pp. 39-50.
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16. Hall, E. A., Rosenthal, J. and Wade, J., How to make re-engineering really work. The McKinsey Quarterly, No. 2, 1994, pp. 107-128. 17. Vasilash, G. S., Re-engineering: Your job may depend on it. Production, June, 1993, pp. 9-16. 18. Martinez, E. V., Successful re-engineering demands I. S./Business partnership. Sloan Management Review, Summer 1995, pp. 51-60. 19. Ballou, R. H., Re-engineering at American Express: The travel services group's work in progress. Interfaces, May-June, 1995, pp. 22-29. 20. Holland, D. and Kumar, S., Getting past the obstacles to successful re-engineering. Business Horizons, May-June 1995, pp. 79-85. 21. Editors of Economist, A brief theory of everything. The Economist, May 6, 1995, p. 63. 22. Offodile, O. F., Machine-grouping in cellular manufacturing. Omega, 1993, 21, 35-52. 23. Hyer, N. L., The potential of group technology for U.S. manufacturing. Journal of Operations Management, 1984, 4, 183-202. 24. Caldwell, B., Missteps, miscues. Information Week, June 20, 1994, p. 52. 25. Nakajima, S., TPM Development Program: Implementing Total Productive Maintenance, Productivity Press, Portland, OR. 1990. 26. Imai, M., KAIZAN: The Key to Japan's Competitit,e Success, Random House, New York, 1986. 27. Manganelli, R. L., Re-engineering: It's not a silver bullet. Journal of Business Strategy, Nov.-Dec. 1993, p. 45 + . 28. Martinez, E., Avoiding large-scale 1/T project failures: The importance of fundamentals'. Project Management Journal, June 1994, pp. 17-25. 29. Reger, R. K., Mullane, J. V., Gustafson, L. T. and DeMarie, S. M., Creating earthquakes to change organizational mindsets. Academy of Management Executive, 1994, g, 31-46. 30. Kleiner, A., The battle for the soul of corporate America. Wired, August 1995. 31. Editors of The Economist, Hammer defends re-engineering. Economist Nov. 5, 1994. 32. Katz, R., Is re-engineering already dead? American Quality Digest, Jan. 1995. 33. Davenport, T., Why re-engineering failed: The fad that forgot people. Fast Company (premiere issue), Jan. 1996.