Business Process Reengineering

Instructor
Dr. Syed Amir Iqbal
A Cow Path?
 Introduction to Reengineering
• Business Process Reengineering (BPR)
– One of the buzzwords of the late 80’s and early 90’s
– “…achieves drastic improvements by completely redesigning core
business processes”
• BPR has been the subject of numerous articles and books;
classical examples are:
 “Reengineering Work: Don’t Automate, Obliterate”, Michael
Hammer, Harvard Business Review, 1990
 “The New Industrial Engineering”, Davenport and Short, Sloan
Management Review, 1990

3
 BPR Success Stories and Failures

Success Stories
• Ford cuts payable headcount by 75%
• Mutual Benefit Life improves underwriting efficiency by 40%
• Xerox redesigns its order fulfillment process and improves
service levels by 75-97% and cycle times by 70% with
inventory savings of $500 million
• Detroit Edison reduces payment cycles for work orders by 80%

Failures
• An estimated 50-70% of all reengineering projects have failed
• Those that succeed take a long time to implement and realize

4
 Reasons for BPR Failures
• Lack of support from senior management
• Poor understanding of the organization and the infrastructure
• Inability to deliver necessary technology
• Lack of guidance, motivation and focus
• Fixing a process instead of changing it
• Neglecting people’s values and beliefs
• Willingness to settle for marginal results
• Quitting too early
• Allowing existing corporate cultures and mgmt attitudes to prevent
redesign
• Not assigning enough resources
• Working on too many projects at the same time
• Trying to change processes without making anyone unhappy
• Pulling back when people resist change
etc… 5
 What does it take to succeed with BPR?
• Hammer and Champy
– “The role of senior management is crucial.”
• Empirical research indicates…
– organizations which display understanding, commitment
and strong executive leadership are more likely to succeed
with process reengineering projects.
• Common themes in successful reengineering efforts
1. Firms use BPR to grow business rather than retrench
2. Firms emphasize serving customers & compete
aggressively with quantity & quality of products & services
3. Firms emphasize getting more customers, more work and
more revenues instead of downsizing

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 Reengineering and its Relationships to
Other Improvement Programs (I)
• Reengineering - what is that?
– “The fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in critical,
contemporary measures of performance such as cost, quality,
service and speed” (Hammer and Champy 1993)
– A number of similar definitions by other authors also exist

• Reengineering characteristics
– Focus on core competencies or value adding business processes
– The goal is to achieve dramatic improvement through rapid and
radical redesign and implementation
Þ Projects that yield only marginal improvement and drag out over
time are failures from a reengineering perspective

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 Reengineering and its Relationships to
Other Improvement Programs (II)

Rightsizing Restructuring Automation TQM Reengineering

Assumptions Staffing Reporting Technology Customer Fundamental

questioned relationships applications needs

Focus of Staffing, job Organization Systems Bottom-up Radical

change responsibilities improvements changes

Orientation Functional Functional Procedures Processes Processes

Role of IT Often blamed Occasionally To speed up Incidental Key

emphasized existing systems

Improvement Usually Usually Incremental Incremental Dramatic and

goals incremental incremental significant

Frequency Usually one Usually Periodic Continuous Usually one

time one time time

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 Relationship between Discontinuous
(Radical) and Continuous Improvement

Theoretical
Capability
Improvement

Statistical
Process
Incremental Radical Control
Improvement Improvement

Time

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BPR Versus Continuous Improvement

Continuous Improvement Process Reengineering

Incremental Change Radical Transformation

People Focus People & Technology Focus
Low Investment High Investment
Improve Existing Rebuild
Work Unit Driven Champion Driven
BPR Versus Process Simplification

Process Simplification Process Reengineering

Incremental Change Radical Transformation

Process-Led Vision-Led
Assume Attitudes & Behaviors Change Attitudes & Behaviors
Management-Led Director-Led
Various Simultaneous Projects Limited Number of Initiatives

(Source Coulson-Thomas, 1992)

 Origins
Further Ahead…
The rise and fall, and rise again !
 When Should a Process be Reengineered? (I)
• Three forces are driving companies towards redesign
(The three C’s, Hammer & Champy, 1993)
 Customers
– are becoming increasingly more demanding
 Competition
– has intensified and is harder to predict
 Change
– in technology
– constant pressure to improve; design new products faster
– flexibility and ability to change fast are requirements for
survival

14
When Should a Process be Reengineered? (II)
• Useful questions to ask (Cross et al. (1994))
– Are customers demanding more for less?
– Are your competitors providing more for less?
– Can you hand-carry a job through the process much faster
than the normal cycle time (ex five times faster)?
– Have your incremental improvement efforts been stalled?
– Have technology investments been a disappointment?
– Are you planning to introduce radically new products/services
or to serve new markets?
– Are you in danger of becoming unprofitable?
– Have cost-cutting programs failed to turn the ship around?
– Are operations being merged or consolidated?
– Are the core business processes fragmented?

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 What Should be Reengineered? (I)

• Processes (not organizations) are reengineered

– Confusion arises because organizational units are well defined,
processes are often not.
• Formal processes are prime candidates for reengineering
– Formal processes are guided by written policies; informal
processes are not.
– Typically involve several departments and many employees.
– More likely rigid and therefore more likely to be based on
invalid assumptions.

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 What Should be Reengineered? (II)

Screening criteria
1. Dysfunction
– Which processes are in deepest trouble
(most broken or inefficient)?
2. Importance
– Which processes have the greatest
impact on the company’s customers?
3. Feasibility
– Which processes are currently most
likely to be successfully reengineered?

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 Dysfunctional or Broken Processes
Symptoms and diseases of broken processes
Symptom Disease

1 Extensive information Arbitrary fragmentation

exchange, data redundancy of a natural process
and re-keying
2 Inventory, buffers and System slack to cope with
other assets uncertainty
3 High ratio of checking and Fragmentation
control to value-adding

4 Rework and (re)iteration Inadequate feedback along

chains

5 Complexity, exceptions Accretion onto a simple base

and special cases
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 Feasibility
 Determined by: Process Scope, Project Cost, Owner
Commitment and the Strength of the Redesign Team
– Larger projects offer potentially higher payoffs but lesser
likelihood of success

Process Scope Project Cost

Process
Feasibility

Owner/Corp. Team Strength

Commitment

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 BPR Framework

Organization Technology
– Job skills – Enabling technologies
– Structures – IS architectures
– Reward – Methods and tools
– Values – IS organizations

Process
– Core business processes – Customer-focus
– Value-added – Innovation
 Suggested Framework for BPR (I)
• Business process reengineering cycle can be represented as follows

• It involves identifying the processes first and then doing a thorough and in-depth
• As-Is analysis. Once it’s done, the processes can be identified for update or
review.
• Then a To-Be analysis is done and designed so that the organization knows where
it has to go and what it has to achieve. Benchmarking is an important step here.
Once the plan is in place, the reengineering process is implemented and
continuous improvement is aimed at. 21
 Revolutionary vs. Evolutionary Change
• The reengineering movement advocates radical redesign
and rapid revolutionary implementation and change
• A revolutionary change tactic
– Turns the whole organization on its head
– Has potential to achieve order of magnitude improvements
– Is very costly
– Has a high risk of failure
• To reduce risks and costs of implementation many
companies end up with a strategy of radical redesign and
evolutionary implementation tactic
– Implementing the feasible plans given current restrictions
 Implemented process is usually a compromise between the
original process and the “ideal” blueprinted process design

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 The Evolutionary Change Model (I)
• Basic principle
– People directly affected by or involved in a change process must
take active part in the design and implementation of that change
– Real change is achieved through incremental improvement over
time
• Change should come from within the current organization
– Should be carried out by current employees and leadership
– Should be adapted to existing resources and capabilities  flexible
milestones
– Should be based on open and broad communication
• New processes and procedures are implemented before
introducing new IT systems

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 The Evolutionary Change Model (II)
• Advantages of an evolutionary change tactic compared to a
revolutionary approach
– Less disruptive and risky
– Increases the organization's ability to change
• Disadvantages
– Takes a long time to see results
– Does not offer the same potential for order of magnitude
improvements
– Vision must be kept alive and adjusted over time as external market
conditions change

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 The Revolutionary Change Model (I)
• Based on the punctuated equilibrium paradigm
– Radical change occurring at certain instances
– Long periods of incremental change in between
• Revolutionary change
– Happens quickly
– Alters the very foundation of the business and its culture
– Brings disorder, uncertainty, and identity crises
– Needs to be top driven
– Requires external resources and new perspectives
– Involves tough decisions, cost cutting and conflict resolution
• The change team is small and isolated from the rest of the
organization
– Avoid undue influence from current operations
– Communication with people in the process is on a “need to know”
basis
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 The Revolutionary Change Model (II)

• Advantages with a revolutionary implementation approach

– Drastic results can be achieved quickly
– If successful, the ideal “blueprinted” design is put in place
• Disadvantages with a revolutionary change tactic
– Very strenuous for the organization
– High probability for failure
– Diverts top management attention from the external marketplace
– Goes against core values of many organizations
 Empowerment
 Bottom-up involvement
 Innovation
– Secrecy creates uncertainty about the future roles of individual
employees  resistance to change

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 BPR Implementation - Key Steps

Select The Process & Appoint Process Team

Understand The Current Process

Develop & Communicate Vision Of Improved Process

Identify Action Plan

Execute Plan
 Alternate Approaches (1)

In this approach of reengineering, the objectives, values, and the vision get de fined
before the learning process which might act as an impediment in attaining final results.
Creating a vision, goals, and values without the knowledge of competitors and non-
competitor capabilities leads to uncertainty of results. In this case it is important to
understand the competitive advantage created by de fi ning vision, the customer needs
fulfilled, and the advantages of the new technology implemented. However to
understand these factors, a prior customer and competitor analysis needs to be done.
Alternate Approaches (2)
Alternate Approaches (3)
Alternate Approaches (4)
Alternate Approaches (5)
 Best Approach
• No approach can be called a best approach as they are situation
specific.
• Like these approaches there are many other methods as well which
can also be used for reengineering. But an organization should employ
that method which best suits its requirements.
• The results are better when the decision taken is of the team as a
whole and is based on an in-depth understanding of the advantages
and the tradeoffs existing.
• For deciding on the methodology, the organization needs to
understand whether to change the existing vision and go for a new
one, whether to go for As-Is analysis depending on existing resources
and time, what period of time needs to be allocated for learning
process, etc.
 BPR Examples
• Ford: Accounts Payable
• Mutual Benefit Life: New Life Insurance Policy
Application
• Capital Holding Co.: Customer Service Process
• Taco Bell: Company-wide BPR
• Others
 Ford Accounts Payable Process*

Purchasing
Purchasing Vendor
Vendor
Purchase order

Receiving
Receiving Goods
Copy of
purchase
order

Receiving
Accounts document
Accounts
Payable
Payable

Invoice

? ? Payment

PO = Receiving Doc. = Invoice *Source: Adapted from Hammer and Champy,

1993
 Trigger for Ford’s AP Reengineering
• Mazda only uses 1/5 personnel to do the same AP.
(Ford: 500; Mazda: 5)
• When goods arrive at the loading dock at Mazda:
– Use bar-code reader is used to read delivery data.
– Inventory data are updated.
– Production schedules may be rescheduled if necessary.
– Send electronic payment to the supplier.
Purchasing
Ford Procurement Process
Purchasing Vendor
Purchase order Vendor

Receiving
Receiving Goods

Purchase
order

Goods
received

Accounts
Accounts
Data base
Payable
Payable

Payment
 Ford Accounts Payable
Before:
• More than 500 accounts payable clerks matched purchase order,
receiving documents, and invoices and then issued payment.
• It was slow and cumbersome.
• Mismatches were common.
After:
• Reengineer “procurement” instead of AP process.
• The new process cuts head count in AP by 75%.
• Invoices are eliminated.
• Matching is computerized.
• Accuracy is improved.
 Taco Bell*
• “We were going backwards - fast ... If something
was simple, we made it complex. If it was hard,
we figured out a way to make it impossible.” -
Taco Bell CEO, John E. Martin

• Customer buy for $1 are worth about 25 cents.

75 cents goes into marketing, advertising, and
overhead.
• Reengineering from the customer’s point of
view. “Are customer willing to pay for these
‘value-added’ activities?”
*Source: Adapted from Hammer and Champy, 1993
 Taco Bell
• Corporate Vision: “We want to be number one in share
of stomach.”
• Slashed kitchen:
Kitchens : Seating capacity
70% : 30% ð 30% : 70%
• Eliminate district managers. Restaurant managers are given profit-
and-loss responsibility.
• Moving cooking of meat and bean outside.
• Boost peak serving capacity at average restaurant from $400 an
hour to $1,500 a hour.
• $500 millions regional company in 1982 to $3 billion national
company in 1992.
 Reengineering Example
Cash Lane
No more than 10
items

Which line is
shorter and
faster?
Reengineered Process

Key Concept:
• One queue for multiple
service points
• Multiple services
workstation
Banca di America e di Italia (Deutche bank)

• After 1993, when you deposited cheques at BAI, the

teller ran them through a scanner at the counter, and
funds were automatically transferred, there and then,
from accounts at the other banks. There was no back
office.
• BAI top executives wanted to create a “paperless” bank.
80% of the bank’s revenue came from retail operations.
• Top executives spent 20% - 60% of their time on the
project.
Banca di America e di Italia (Deutche bank)

• In Oct. 1988, “two teams systematically diagnosed processes

and redesigned them without considering the constraints of the
current organization.”
• First, the organization team broke down all transaction types
into “families”, such as payments, deposits, withdrawals, money
orders, bills, consumer credit, foreign exchange, credit cards
(merchant and card holder), sourcing, and end-of-day
processing.
• They documented in detail one process for each family, then
redesigned it from scratch.
Banca di America e di Italia (Deutche bank)

• The cheque deposit “transaction”, for instance:

• Before:64 activities, 9 forms, and 14 accounts.
• After: 25 activities, 2 forms, and 2 accounts.

 The redesigned process then became the prototype for all transactions in the
family.
 Finally, the organization team handed off the design to the technology team.
That team suggested a client-server architecture.
Banca di America e di Italia (Deutche bank)

• In April 1989 (7 months after start), the organization team

began redesigning all processes in each transaction family
based on the original prototype. A total of 300 processes
were redesigned.
• Meanwhile, the technology team began to build systems.
Branch managers and tellers helped design the screens.
• February 1990, software began to be rolled out, one process
at a time. Tellers were given a five-day training period.
Branches were restructured. The manager was placed out in
front, with the customers.
Banca di America e di Italia (Deutche bank)

• By 1993, the bank had

· 50 new branches, with no increase in personnel
· revenue doubled,1987 to 1994 (1/4 due to BPR),
· average personnel per branch dropped from 8 to 4
· daily cashier closing time from 2 hours to 10 mins
• Summary: Used computer technology to achieve significant
improvements in process performance.
• Aside: Today, many Australian banks are closing branches, and the
potential of internet banking means that more change may be
coming their way.
 PBX sales at AT&T

• US$4B annual sales of PBX equipment

• By 1989, each year the business had met higher performance
targets for individual functions, but overall profit did not increase.
• The president decided to redesign the business’s core processes.
• He appointed a top-performing sales branch manager as team
leader, plus a full-time team from a wide range of functions: sales,
services, product management, Bell Labs, manufacturing,
materials management, information systems, and training.
• He told them that if they failed, the business would be sold or
liquidated.
PBX sales at AT&T: June 1989-Feb 1990

• Team surveyed steps from initial customer contact through to

collection of funds.
• Interviewed employees and customers and constructed 24 cases
which they then analyzed in great detail.
• They identified every person involved, their activities, and how their
time was spent.
• Details:
– an account executive negotiated the sale,

– a system consultant determined the specifications for the system,

–
a technician installed the hardware
 PBX sales at AT&T

· In all, 16 handoffs were required to install a new system.

· No one had responsibility for the entire transaction.
· It could take up to a year to get a large system installed, by which
time customer needs might have changed  dissatisfaction.
· Front-line employees lacked information on profit contribution of
their actions. Marketing often concentrated on low-profit customers.
Sales concentrated on maximizing revenue, not profit.
· Too much use of headquarters staff for various tasks, but little value
added.
· Sales staff worked for AT&T, not the PBX firm, and their main sales
were not PBXs. So sales staff knew little about PBXs, which did not
impress customers.
 PBX sales at AT&T: Redesign
• Appointed Pat Russo to build and run a new PBX sales
force.
• Her goal was to maximize profit and minimize time
between sale and installation.
• Redesign team proposed a new position, called Project
Manager, defined tasks that cut handoffs down from 12 to
3, and estimated that for a typical small system:
· the cycle time could be cut from 3 months to 3 weeks,
· costs would drop by one third
· errors would approach zero.
 PBX sales at AT&T: Redesign
• “The team then turned its attention to the organizational
ramifications of the redesign. The radically different job
responsibilities posed an immense human-resource
problem.”
• Using PCs and off-the-shelf software existing systems were
simplified, and new systems designed to reduce cycle
times and provide accurate profit estimation and job
tracking.
• Rollout April 1991-April 1992
 PBX sales at AT&T
• Results
· Customer willingness to repurchase: 53% 82%
· adjustments dropped from 4% to 0.6% of revenues
· bills paid in 30 days from installation: 31% 71%
· 88% of customers rate project management of their sale and
installation as “excellent”
• Summary
• Redesigning the process caused these improvements. The
actual PBXs did not change. By changing process, it was
possible to produce big increases in value to the customer.
 Siemens Nixdorf Service
• DM 3.4B (=US $2.1B) revenue Siemens Nixdorf Service
(SNS) installs, services, maintains, and networks software
and hardware sold by Siemens Nixdorf.
• By late 1990, the 12,900-person company was still making
profits but forecasting losses by 1995.
• General manager, Gerhard Radtke assembled a ten-person
team to restructure headquarters to reduce personnel by
50%.
 Siemens Nixdorf Service
• September-December 1991: The team confirmed the profit
forecasts but argued that reducing HQ staff would not be
sufficient. Instead, they suggested the entire 11,400 person
field-servicing organization needed to be streamlined.
• SNS had 30 support centres in Germany, fully staffed with
specialists continuously available for telephone enquiries.
Some specialists only received a few phone calls per day.
Most times when technicians visited a site, they identified
the problem, then returned to base for parts (two trips per
call).
 Siemens Nixdorf Service
Redesign proposals for SNS
• Reduce the number of support centres 30  5.
• Found that in 80% of cases, and expert could diagnose the
problem over the phone. Once diagnosed, could airfreight parts
to customer or place in technician’s car  most repairs could be
completed on first service call.
• Team also proposed
 reducing management hierarchy by two levels,
 creating a new team structure for field technicians,

 reducing HQ personnel from 1,600 to 800.

 Siemens Nixdorf Service

• August-October 1992:
trialled the proposal in Frankfurt, good results:
· 35% reduction in personnel
· technicians productivity doubled
• November 1992 - December 1993: Rollout
• Results:
· % of problems solved remotely 10%  25%
· profit and cost improvements in excess of 10%
· employee headcount reduced by 20% (through voluntary retirement
and severance packages)
· plan to service other non-SN equipment in future
 Summary: BPR success stories

• Reengineering (BPR) meant radical change in business

processes (not 5-10% improvements).
• Usually it meant cross-functional change.
• It could be applied to all sorts of organizations (e.g.,
manufacturing and service) in all sorts of processes
(e.g., sales and support).
• Usually it referred to administrative processes, not
manufacturing. (Manufacturing is the domain of TQM,
which was about incremental, not radical change.)
 Summary: BPR success stories

• In some cases, BPR led to dramatic improvements in

performance.
• In many other cases, BPR projects failed.
• BPR was often associated with downsizing.
• Firms in financial trouble often attempted to use
BPR, in a last-ditch attempt to cut costs.
• BPR appealed to senior management ego
Four Revolutions Affecting Business Today

New
Technologies

New New
Competitors Work Force

New Rules of
Competition
 The C’s related to
Organization Re-engineering Projects

The 3C’s of The 4C’s of effective

organization Re- teams:
engineering: • Commitment
• Customers • Cooperation
• Competition • Communication
• Change • Contribution
 Some of the other BPR Objectives
• Improve Efficiency e.g reduce time to market,
provide quicker response to customers
• Increase Effectiveness e.g deliver higher quality
• Achieve Cost Saving in the longer run
• Provide more Meaningful work for employees
• Increase Flexibility and Adaptability to change
• Enable new business Growth