Managing Barriers to Business Reengineering Success

by Wolf D. Schumacher

CHAPTER 2

BUSINESS REENGINEERING PROJECTS

The very radicalism of reengineering, that is, its utopian essence, is simultaneously what makes it so difficult to achieve and, when achieved, makes its productivity achievements so high.

Keith Grint, Management Sociologist, 1995

2.1. Definitions

Organizational Change

Organizational Change is not "happening", but intentional, usually triggered by external events to the organization. Planned change can be effected incrementally, or revolutionary. The action roles in the change process are: (1) The Initiator, usually, though not always the responsibility of top-management; (2) The Change Implementers, the project team or change agent, often represented by middlemanagement and external consultants; (3) The Change Recipients or Change Targets, all people affected by the change (Kanter/Stein/Jick, 1992). Organizational change is effected through projects.

Project

A project is a well-organized development of a tangible or intangible end-product that has a discrete beginning, a discrete end, and a discrete deliverable (Knutson/Bitz, 1991).

Business Reengineering Project

A Business Reengineering project effects revolutionary change to an organization. The project deliverables are radically improved business processes, which satisfy customer requirements much better than before, and which achieve drastic improvements to the operational results of a company.

Project Management

Project management is the discipline, that cultivates the expertise to plan, monitor, track, and manage the people, the time, the budget, and the quality of the work on projects. Project management is the means by which to fit the many complex pieces of the project puzzle together (Knutson/Bitz, 1991).

Project management of a Business Reengineering project is a set of principals, methods, tools, and techniques for the effective management of the introduction of new or drastically changed business processes in a corporation (Hammer/Champy, 1993).

Process Orientation of Business

Process Orientation is a new paradigm for the organization of a business. Instead of the traditional inward-bound functional orientation, which divides the company into functions like sales, production, procurement, and product development, process orientation organizes companies around their processes. The basic idea is, to have everybody in the company in a systematic way better and directly serve the customer, who is at the receiving end of business processes. Thinking in process management was introduced with the concept of Total Quality Management. Process thinking and managing is at the heart of Business Reengineering. Members of the organization are no longer looking upward into the hierarchy, but ahead to the customers, who ultimately drive the organization. A process orientation can be assessed in basically two ways depending on the degree of change required: Process simplification and Process Reengineering. Simplification usually results in an incremental rather than a major step change. Simplification exercises tend to take for granted an existing framework, the limits of installed Information Technology, as well as current attitudes and behaviors. In contrast Business Reengineering aims at fundamental or framebreaking change. A reengineering exercise challenges the existing framework, questions attitudes and behaviors, and might suggest the introduction of new Information Technology. In practice though, simplification and reengineering can overlap and together form the process orientation of an organization (CoulsonThomas, 1994).

Business Processes

Business processes are sequences and combinations of business activities. They break into external customer facing processes, that deliver products and services of value, management, and support processes. Management processes control and coordinate these activities and ensure that business objectives are delivered. Support processes, as the name implies, provide infrastructural and other assistance to business processes. Business Processes can be further differentiated into knowledge-based and operational processes.

Knowledge Based Processes

Among knowledge-based processes are product development, research activities, advertisement, and management consulting. These processes typically are of nonstandard nature; instead they rely on the knowledge and creativity of the persons involved. Knowledge-based processes are not dominant in Business Reengineering projects (Davenport/Jarvenpaa/Beers, 1996).

Operational Processes

Operational processes are at the heart of most Business Reengineering efforts. Operational processes are classified by their relative stability, standardization and repeatability. Typical operational processes are customer service, procurement, and manufacturing. Operational processes are further classified into key and secondary processes. Key processes directly support the mission and the strategies of the company.

Before this company adopted a process view, it was organized functionally. The traditional functional organization gave top management the highest priority, whereas from a process viewpoint, the satisfaction of customer requirements now has the highest priority in the organization. Thus the execution process, i.e. selling, producing and delivering goods and services to the customer is at the heart of the reengineered company. Workers who are closer to the customer than managers, and worker development are very important to success. The new-product-process fuels the execution process, by assessing mid-term and long-term customer needs, and technological innovations. The support process provides services -not control- for the execution and new-product processes. The management process puts top-management in a position of facilitating the process executions and providing an environment of vision and trust.

Teams

Team working is a feature of product and service delivery to customers. Work teams as opposed to large departments are responsible for as much of a business process as possible. Teamwork is more than friendly people located in a single room. A team is a

special group of people with complementary skills, highly dedicated to a common process objective. A functioning team makes management control largely unnecessary; the main reason, why middle-manager positions often become redundant in reengineered organizations with work teams at the execution level. Table 2.1./1 shows important factors that differentiate winning from losing teams (Peppard/Rowland, 1995). Chapter 6 will feature a case study where teams are an important part of a Business Reengineering effort at a german special machinery manufacturer.

Winning Teams Are clear about their goals.

Losing Teams

Bring people together only

because they like each other.

Are in touch with what is going

on outside the team.

Focus more on the team itself

than the outcome.

Are small in size, but large

enough to master the process.

Are too small or too large in

size.

Have and increase

complementary skills.

Do not have the necessary skills

available for the tasks. Do not train their capabilities.

Value input, regardless of rank. Are confident in overcoming

conflict.

Accept ideas only from

superiors.

Fight is common. Flight is common. Do not

support each other.

Support each other in achieving

more than they ever thought possible.

Celebrate their success.

Ignore the need for individual

recognition.

Table 2.1./1 Factors That Differentiate Winning from Losing Teams

Information Technology

Information Technology delivers tools to and plays four distinct roles within Business Reengineering projects:

Information Technology Enables New Processes

Information Technology may help to devise innovative business processes, which would otherwise not be attainable. Two examples:

Example 1: In an early Business Reengineering project the IBM credit corporation reorganized the crediting function. Just one person (a so called case manager) performs all tasks of a former whole credit department by using a new computer application system (Hammer/Champy, 1993).

Example 2: WWW.Amazon.com is the Internet web page address of the currently largest virtual bookstore in the world. More than one million titles are available. None of these is on store, but can be searched for and ordered interactively by remote Internet users located as far away as Herrenberg, Germany. The Amazon company made sure though to locate near Seattle, Washington, to have easy access to the largest physical book warehouses in the U.S. Their web site even offers an alert function, which automatically sends an electronic mail (e-mail), whenever a new book has been published, whose profile (author, title, subject, etc.) the customer is interested in. This Amazon selection and ordering process would not be possible without the Internet technology.

Information Technology Tools Help to Facilitate Project Management

Project management tools help to analyze processes, and define new processes. They can also be used to define the introduction of process oriented application software packages. (Miers, 1995). According to a recent study, the US$ 100 Million tool market is broadening and rising at 40% per year (Gartner Group, 1995).

Information Technology Lets People Work Together More Closely

Traditional mainframe-oriented Information Processing was revolutionized in the 1980`s by the Personal Computer (PC). Today, PC`s are commonplace and mostly part of Local Area Networks (LAN), or even Wide Area Networks (WAN), which electronically link teams, to allow non-physical collaborative work. Special software systems, like E-mail, groupware, workflow-management, teleconferencing, etc. are elements of this pervasive role, Information Technology is taking.

Information Technology Helps to Integrate Businesses

The process view of businesses includes the integration of business processes within a company and also between business partners (company, and customers, as well as vendors). German software vendor SAP AG conquered the worldwide market for total enterprise solutions, even that the software is not fully compatible with the process viewpoint. Companies are using SAP R/3 client/server and competitive software (Oracle, PeopleSoft, etc.) products, because these are totally integrated and help to enforce the reengineering process, by concentrating on the software implementation process: "Chief Information Officers want to complete (Business Reengineering) projects in six months, because they know, how fast the business is changing" (Baatz, 1996).

2.2. The Development of Business Reengineering

The creators of Business Reengineering weren't consultants or academics. They were "real people" with real problems to fix. At companies like Ford, Hewlett-Packard, and Mutual Benefit Life, managers were experimenting with new uses of Information Technology to link business processes that cut across boundaries. These real people at the time (1980`s) did not call their reorganizational work Business Reengineering. This came later, at the beginning of the 1990`s, as one of the founders of Business Reengineering recalls (Davenport, 1996).

In the United States, later in Europe, Business Reengineering soon became a substitute term for downsizing, i.e. a tool for affecting massive layoffs. Thus Business Reengineering gained wide acceptance with top-management, particularly in the manufacturing industry during the business slump era in the beginning of the 1990`s up until today. At a recent Boston forum, the most prominent founder of Business Reengineering, M. Hammer, conceded, that Business Reengineering had become a tainted term because of the rough language and associated actions, that are widely associated with Business Reengineering: "Carry the wounded, but shoot the stragglers" is only one example of neglecting people's concerns in Business Reengineering projects. Nobody wants to be reengineered and feel like "a prisoner of war" (Davenport, 1996).

As Davenport points out, Business Reengineering slipped into a destructive management concept, far away from people centered concepts like Total Quality Management, that also features process improvements (Davenport, 1996).

Yet Business Reengineering is not wrong. Processes are the way people work. Any company that ignores its business processes or fails to improve them risks its future. But there are several different approaches to process improvement. Business Reengineering not only has to take cost-cutting measures into consideration that reduces the payroll, but also improvement ideas, that give people a future in their company, that drive creativity for the sake of the company and the society. Process Reengineering should not take people's anxieties to loose their job as a side-product, but focus on turning a company into a self-renewing organization. Thus the most vital requirement for revitalizing businesses is to rejuvenate their people, their behaviors and positive actions towards the future (Bartlett/Ghoshal, 1995).

2.3. The Principles of Business Reengineering

The principles of Business Reengineering emerged during the early 1990`s. Table 2.3./1 lists some important principles (Coulson-Thomas, 1994).

Externally, focus on end customers and the generation of greater value for customers. Give customers and users a single and accessible point of contact through which they can harness whatever resources and people are relevant to their needs and interests. Internally, focus on harnessing more of the potential of people and applying it to those activities which identify and deliver value to customers. This principle tends to be overlooked. Encourage learning and development by building creative working environments. This principle has been almost forgotten in many organizations, the current emphasis being to squeeze more out of people and working them harder, rather than improving the quality of work life and working more cleverly. Think and execute as much activity as possible horizontally, concentrating on flows and processes (including communication) through the organization. Remove non-value added activities, undertake parallel activities, speed up response and development times. Concentrate on outputs rather than inputs, and link performance measures and rewards to customer related outputs. Give priority to the delivery of value rather than the maintenance of management control. The role of the manager is being redefined and an emphasis on command and control is giving way to empowerment, and the notion of the coach and facilitator. Network related people and activities. Virtual corporations are becoming commonplace in some business sectors. Implement work teams and case managers extensively throughout the organization. Move discretion and authority closer to the customer, and re-allocate responsibilities between the organization, its suppliers and customers. Encourage involvement and participation. This requires error-tolerant leadership. Ensure people are equipped, motivated and empowered to do what is expected of them. Where ever possible, people should assume full responsibility for managing and controlling themselves. This requires planning skills. Work should be broadened without sacrificing depth of expertise in strategic areas. Avoid over-sophistication. Don't replace creative thinking with software tools. Keep the number of core processes to a minimum (approx. 12). They all should be directed to external customers. Management processes such as corporate planning processes which deliver too late to have any real impact can lack both internal and external customers. Build learning, renewal, and short feedback loops into business processes. Ensure that continuous improvement is built into implemented solutions. Experience of Business Reengineering can re-awaken interest in TQM (Total Quality Management) ; both are natural complements. This is widely overlooked.

Table 2.3./1 The Principles of Business Reengineering

2.4. Business Reengineering Project Management

One way to classify Business Reengineering projects is based on their organizational scope (Ponce-de-Leon/Rai/Melcher, 1995), which can be narrow or broad. Another way is to classify by objective (Johansson/McHugh/Pendlebury/Wheeler III, 1993). Table 2.4./1 combines both views; matrix rows describe the organizational view, columns describe the objectives view.

Project Type

Process Improvement Cost-Reduction

Achieving Best-InClass Competitive Parity Example 1.2.: Reengineer the sourcing process to ensure that the lowest cost suppliers are being selected.

Break-Point Rewriting the Rules

Intrafunctional Projects are aimed at single and isolated tasks, activities or single function. Interfunctional Projects target cross functional business processes, but are contained within a businessunit. Interorganizational Projects bridge between two or more business units, such as the company and its customers and suppliers.

Example 1.1.: Eliminate costly paper work by introducing an email system to internal communication.

Example 1.3.: A company uses a digital voice recording system to streamline its acquisition process, and to improve communications.

Example: 2.1.: A bank has created a simplified, one page form for loan applications for those customers, seeking up to US$ 60k.

Example 2.2.: Introduce selfdirected work teams to the order management process in a manufacturing company.

Example 2.3.: A bank dissolves all existing 120 branches, and introduces an extremely userfriendly direct banking system on the Internet.

Example 3.1.: Link up with one particular vendor for cost saving purposes in product design and parts delivery (single source concept).

Example 3.2.: Reengineering the delivery process between a german machine manufacturer and all its European automotive parts suppliers (just-intime processes).

Example 3.3.: An automotive company externalizes all employees, except a staff of thirty people. Former employees turn into entrepreneurs and form a network of suppliers together with other vendors.

Table 2.4./1 Classification of Business Reengineering Projects

Most Business Reengineering projects fall into the categories 1.2., 1.3., 2.1., 2.2., 3.1. and 3.2.. The case presented in chapter 6 falls into category 2.2.. Break-Point projects of type 2.3. and 3.3. are rare, due to high implementation risks associated with largescale projects, as well as the aspirations of some project managers for quickly gaining project success as a basis for career advancements. It is questionable, whether the small scope project type 1.1. can by classified as a Business Reengineering project at all. In noting the high failure rate for Business Reengineering efforts, Manganelli/Raspa cite that many programs are poorly conceived and executed, focusing tactically on small-scale functional make-overs and not really well integrated. They maintain, that Business Reengineering can achieve the potential success only if it`s deployed strategically and linked to business goals (Manganelli/Raspa, 1995).

There is a large number of different project management methodologies available for Business Reengineering. Some are of a more theoretical nature, others are of practical nature.

Manganelli/Klein list and compare eleven important Business Reengineering project management approaches (Manganelli/Klein, 1994).

Hess/Brecht published a comprehensive study of fifteen Business Reengineering methodologies (Hess/Brecht, 1995). They concentrated on the Information Technology elements of Business Reengineering. They conclude, that next to Information Technology, Teamwork can be considered key to most methodologies. They also concluded, that there is no generally accepted way of analyzing and defining business processes. They do not touch the subject of this report, though, barriers to Business Reengineering.

Based on the above studies of Business Reengineering approaches, the author selected the following four representative methodologies from the academic, consulting and user fields for review (Table 2.4./1). Government related approaches, such as the U.S. Department of Defense Business Reengineering framework (DoD, 1997) are omitted.

Source Consultants (Academic Background) Academics Consultants Users

Methodology Hammer/Champy Davenport Manganelli/Klein Kodak

Table 2.4./2 Selected Business Reengineering Methodologies

2.4.1. The Hammer/Champy Methodology

Hammer/Champy popularized Business Reengineering. Hammer, a former M.I.T. professor turned into a consultant, and Champy, president of the world-wide consulting company CSC Index, define Business Reengineering as a fundamental rethinking and radical redesign of mission critical business processes (Hammer/Champy, 1993). Hammer/Champy see poor management and unclear objectives as the main problems to Business Reengineering success. Only just recently they acknowledge people`s resistance as a major obstacle to Business Reengineering`s successful implementation (Davenport, 1996). Their Business Reengineering methodology, which was fine-tuned by Champy`s consulting company, breaks into six steps (Table 2.4.1./1).

Project Steps

Objectives The CEO initiates the project. She describes briefly and pragmatically the current business situation to start actions. She introduces her vision to the employees of the company. This step looks at the broad picture, of how processes interact within the company and in relation to the outside world. One deliverable is a graphical display of all processes.

1. Introduction into
Business Reengineering

2. Identification of
Business Processes

 Selection of Business
Processes

The third step serves to select such processes , which once reengineered - will lead to high value for the company's customers. Also processes, that lend themselves to easy reengineering are being selected. This step does not dwell on a detailed analysis of the functioning of the selected business processes, rather concentrates on the performance of the current processes as opposed to what is expected from them in the future. The fifth step is according to Hammer/Champy the most creative of all. It is characterized by imagination, lateral thinking and some sort of craziness.

Understanding the
Selected Business Processes

Redesign of the
Selected Business Processes

Implementation of
Redesigned Business Processes The last step covers the implementation phase of the Business Reengineering project. Hammer/Champy do not talk about implementation as much as about project planning. They believe in the success of the implementation, once the five preliminary steps have been properly performed.

Table 2.4.1./1 The Hammer/Champy Methodology

2.4.2. The Davenport Methodology

Davenport puts Information Technology at the heart of Business Reengineering. For Davenport Information Technology possesses the most important role for innovating Business Processes. Despite his emphasis on innovation and technology, Davenport states, that organizational and human resource issues are more central, than technology issues to the behavior issues, that must occur to within a business process. Davenport sees culture as a constraint, when there is a poor process innovation to cultural fit. With regard to managing the change, Davenport emphasizes traditional management functions, like planning, directing, monitoring, decision making and communicating (Davenport/Short, 1990 and Davenport, 1993).

Davenport is convinced, that Business Reengineering should better integrate with the other non-revolutionary (incremental) process approaches, like Total Quality Management (Davenport, 1996). His methodology covers six steps (Table 2.4.1./2)

Project Steps

Objectives The first step is needed to focus all subsequent actions on company visions and process goals. Cost reduction is considered an important goal, yet Davenport warns against concentrating too much on cost-cutting, because other goals, such as worker satisfaction, reduction of time requirements, and improvement of process performance might be discriminated against. This step identifies the business processes, which should be reengineered. Davenport advises Business Reengineering teams to concentrate on a few important, not more than 15 core processes. The third step studies the exact functioning and performance of the selected Business Processes. This differentiates Davenport from the Hammer/Champy approach. Davenport in particular wants to make sure, that during the process redesign old practices are not being "reinvented" and performance benchmarks for the redesigned processes are being set up. The fourth step serves to study the applicability of Information Technology tools and applications for the newly designed work processes. This step covers the design of a functioning prototype of the new Business Process. People in the company study this prototype, develop ideas for enhancements and make themselves comfortable with the redesign of their work processes. The last step serves to implement the tested prototype on a company-wide basis. Davenport considers this step crucial to the success of the overall effort, since implementation takes roughly double as long (minimum one year) as the foregoing steps.

1. Visioning and
Goalsetting

2.

Identification of
Business Processes

Understand and
Measure Processes

Information
Technology

Process Prototype

Implementation

Table 2.4.1./2 The Davenport Methodology

2.4.3. The Manganelli/Klein Methodology

Manganelli/Klein argue, to only concentrate on those Business Processes, that directly support the strategic goals of the company and customer requirements. Product development (a knowledge process) is such a preferred Business Process. The see organizational impact, time, risk, and cost as obstacles to success. They claim, Business Reengineering to be more successful than incremental change initiatives, which tend to fail more often (Manganelli/Klein, 1994).

The Manganelli/Klein Business Reengineering methodology Rapid-Re (tm), which is supplemented by the Rapid-Re Reengineering Software toolset for Microsoft Windows (tm), breaks into five steps (Table 2.4.1./3).

Project Steps

Objectives The first step asks all directly involved persons to define goals and to prepare for the Business Reengineering project. This step defines a customer oriented process model of the organisation, as well as select key business processes for redesign. The third step serves to define at which performance level the processes currently delivers, and which higher level is required for the future. This step breaks into two parallel sub-steps The Technical Design deals with Information Technology Design to support the new processes. The Social Design step serves to design new work environments for the people, including organizational and personnel development plans.

1. Preparation 2. Identification Vision Re-Design 4.1. Technical

Design 4.2. Social Design

 Transformation

The fifth step is meant to implement the redesigned processes and work environments within the organization.

Table 2.4.1./3 The Manganelli/Klein Methodology

2.4.4. The Kodak Methodology

The international Kodak organization developed a Business Reengineering methodology that is being applied to Kodak facilities around the world. Similar to other practitioner approaches, has the Kodak methodology been influenced by Hammer/Champy. The Kodak methodology breaks into five steps (Kodak, 1995):

Project Steps

Objectives The first step is considered key. It covers project planning and definition of all project administration rules and procedures. This step sets the project team up, designs a comprehensive process model for the organization and assigns process managers, who will be responsible for the redesigned process after implementation. The third step covers the redesign of selected Business Processes, taking into account the potentials of Information Technology. This step ends with the planning of a Pilot Implementation of the redesigned processes. The fourth step is focused towards the implementation of the newly designed processes within the organization. Part of this step is the adaptation of the organization's infrastructure to the requirements of the newly designed processes. The last step is being performed parallel to the first four steps. The project team handles barriers, which crop up during the course of the Business Reengineering project.

1. Project Initiation 2. Process

Understanding

New Process Design

Business Transition

Change Management

Table 2.4.1./4 The Kodak Methodology

2.5. Conclusion

The four representative methodologies assume, that Business Reengineering projects are being initiated by top-management and carried out by specially formed project teams. Business Reengineering projects are typically not considered collaborative efforts, but rather top-down power driven projects. The General Accounting Office studied all available Business Reengineering methodologies and came to the conclusion, that all of these can be structured into three steps (General Accounting Office, 1995) of Business Reengineering project management (Table 2.5./1).

Step 1: Project Preparation Hammer/Champy (Consultants / Academics) Davenport (Academic) 1. Introduction 2. Identification 3. Selection 1. Visioning and Goalsetting 2. Identification Manganelli/Klein (Consultants) 1. Preparation 2. Identification

Step 2: Redesign of Processes 4. Understanding 5. Redesign

Step 3: Implementation 6. Implementation

3. Understand and measure 4. Information Technology 3. Process Vision 4a. Technical Design 4b. Social Design

5. Prototyping 6. Implementation

5. Transformation

Kodak (Users)

1. Project Initiation 5. Change Management

2. Understanding 3. New Process Design

4. Business Transition 5. Change

5. Change Management

Management

Table 2.5./1 Comparison of Selected Business Reengineering Methodologies

The comparison of the four selected methodologies shows many similarities. First, the overall approach Business Reengineering projects take, is of a linear nature. Further, Business Reengineering projects take a similar route as Information Technology implementation projects. Within the three consecutive steps, the individual approaches differ in the scope of project preparation. Davenport asks for a complete preparation including visioning, whereas the other methodologies contrast by handson approaches right from the project start. Davenport, Manganelli/Klein and Kodak also address the people side of Business Reengineering, but only as far as implementation issues are concerned. Taking the conclusion further, and applying it to the sources of existing methodologies, then consultants appear to see Business Reengineering as yet another systematic and marketable approach for fast and costefficient implementation of planned change. Technically oriented academics take a broader view, yet shy away from really integrating social psychology into their linear approaches, because this might be considered non-scientific by colleagues. Users prefer an eclectic approach. They take proven elements both from consultants and academics and apply them as needed.

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