Re-Engineering The Corporation

Re-engineering The Corporation
A Manifesto for Business Revolution

Book by Michael Hammer and James Champy

Talk delivered at a lunch group meeting

J oe Cleetus
Concurrent Engineering Research Center
West Virginia University, Morgantown, WV.

Copyright Concurrent Engineering Research Center
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Re-engineering The Corporation
Book by Michael Hammer and James Champy
About the radical re-design of a company's processes,
organization, and culture.
Quantum leap, not 10% gains -- the goal.
How corporations speed up, become flexible, and attain high
levels of customer satisfaction..
Frederick Taylor's notions of division of labor, elaborate
controls, and managerial hierarchy are now obsolete..
Concentrate now on rethinking sets of end-to-end activities
that create value for the customer.
Roadmap to getting a re-engineered corporation by the study
of exemplary companies who replaced their old processes.
Explores reasons to reengineer, describes the techniques.
Guidelines for conducting and following through on BE.
Business re-engineering is a set of procedures for effecting radical change.
It means starting over, not tinkering.
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Intro to Re-engineering
Adam Smith and Henry Ford taught the value of specialization
and decomposition of work into its elements: tasks. Linear
flows and lack of variety ("any color so long as it is black",
Ford said about the Model T which sold for $500) were the
reason for its success.
Today variety is the consumer's right, work processes are far
from linear, and organizations have become very large. There
is gridlock. Time to re-unify the tasks and make them into
coherent processes, and mange the processes instead of the
tasks.
Re-engineering is not about fixing anything. It is about
abolishing and starting afresh.
Use today's technology and today's market needs to organize
the work. Forget the old titles and responsibilities and
departments.
The governing philosophies and unconscious (or conscious)
rules may all have been rendered obsolete.
Think Discontinuously is the message.
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Intro to Re-engineering
Have to look across and beyond functional departments, to
processes: therefore needs to have a very high level mandate.
Cannot be done as a bottom-up self-improvement or
continuous improvement -- though there is a place for that.
Why did these companies adopt radical change instead of
incremental change?.
These companies used a common set of tools and tactics.
They asked "Why do we do what we do?", not "Can we do
what we are doing better, faster, or cheaper.
Many tasks were being done to satisfy internal rules, not to
provide value to the customer.
To survive, every corporation has to re-invent its processes
periodically.
-- to adjust to the inevitable change in its environment (which
could have been caused by its own actions).
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The Crisis
Parts of a company optimize at the expense of the whole.
There is no one or department in charge in charge of getting
the work done which needs spans departments, e.g., no VP of
Order Fulfillment or Returns or ... But returns may involve 13
departments (receiving, warehouse, inventory management,
sales, accounting, commissions, etc.)
Ex. of how long it take to do field testing of a drug. Lots of wait
time, recycle time for error. Took 2 years to get a 1 week follow
up study on 30 patients.
Growing bureaucracy and middle management -- an overhead
that does not scale, it grows disproportionately.
Customers have choice and want service, variety, flexibility,
and get information (like Consumer Reports).
Competitors are global; they do not play by your rules or suffer
from your economic situation or cost structures. Start-ups
everywhere change the rules, they do not imitate what is
around.
No management principle will fix the problem of decline till
the key processes are re-built for today's demand.
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Definition of Re-engineering
"Re-engineering is 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."
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Path to Change is Re-engineering
Bureaucracy is the glue that makes the current fragmented
tasks come together to produce a result. You need it so long
as the tasks remain fragmented and do not become a
business process.
Take nothing for granted, consider even that the existing process
may be unnecessary, and wholly new needs may be present.
Do not foreclose new processes because they will entail a change in
the responsibility or power structure or organization.
Re-engineering focuses on redesigning a fundamental business
process, not on departments.
Once a real work process is re-engineered, the shape of the
organizational structure required to perform it will become apparent.
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Examples of Re-engineering
IBM Credit Corp Managers walked through an actual credit
approval request and found it took 90 minutes of work and 7
days of wait time. Solution: replaced a host of specialists by
single generalist who did the whole process which took 4
specialists. No hand-offs.
Ford Motor decided to pay on receipt of goods, after a check
against the P.O. which is available on-line. No vendor invoice is
needed. Reduced 500 person AP department to 125 person
Procurement department. Elsewhere Ford pays when they use
the vendor's brakes.
Kodak did CE to speed up the development of a 35mm single-
use camera in response to Fuji. Engineers in all departments
worked simultaneously instead of sequentially, but shared
changes every day and resolved conflicts. Cut 70 weeks to 38
weeks. And involvement of tooling designer early has made the
design more inexpensive to manufacture by 25%.
Reengineering means doing more with less.
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Rethinking Business Processes
Question (perhaps unarticulated) the assumptions underlying
a process. For example, "we pay when we receive goods".
Combine several jobs into one (IBM Credit). A case worker or a
case team replaces a department or a set of departments.
Processes may require several versions. Instead of one
standard process you have several different standard
processes.
Workers make decisions. Who else should?
Search for parallelism and exploit it.
Decentralize work when that makes sense, in terms of
reducing cost and hassle.
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Rethinking Business Processes
Reduce checks and controls. Replace transaction-by-
transaction controls with aggregated controls, done at
deferred time. Tolerate possibility of limited fraud.
Minimize reconciliation (number of checks on something
before it happens).
Provide single contact case manager with responsibility to the
customer to shield him/her form internal complexity.
Exploit information technology to share information across
boundaries. But do not automate old processes. You may
make them harder to change, and the damage they do may be
magnified.
Combine the freedom, flexibility, and focus that comes from
de-centralization, with the advantages that go with
centralization (shared information, uniform procedures, etc.)
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New World of Work
Business process re-engineering will cause other changes:
in values, in metrics, in activity focus and even in the
organization structure itself.
1 Work units change from departments --> Process
Teams.
Process teams do not contain representatives from all the other
departments involved. Rather, process teams replace all the
departments involved. The team may have one person re-trained to
handle several aspects, or be composed of many people. The team may
be permanent (recurring work) or be episodic (product development)
2 Jobs change from simple tasks to multi-dimensional
work.
Specialized repetitive assembly-line work is transformed into work that
needs an understanding of the whole process and focus on getting to
the point where value si delivered to your customer. An individual's
work will be influenced by its cross-dependency with other people's
work. Interface hand-off checking and controls are reduced and more of
the time is spent adding real value.
The challenge is that the work requires smarter people.

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New World of Work
3 People's roles change -- from controlled to empowered.
No longer is it enough to have people who just follow the rules. People need to
work in a self-directed manner, adhering to previously accepted goals fo quality,
deadlines etc. But they solve the problems themselves, not by responding to
supervisory checks on them -- which waste time, anyway. Taking initiative,
having self-discipline, and so on become the valued traits of an employee.
4 Job preparation changes from training to education.
Training is to follow a procedure (the what). Trained people fill a slot.
Education is to think and understand the job (the why). There is only a rough slot
and it will keep changing. The emphasis is on the ability to learn and re-learn.
5 Performance measures and compensation shifts from activity
to results.
Because a process creates a product or service with value to the company, you
can compensate teams of people on that basis, rather than for time spent, or
pieces of paper handled, or joints soldered, or some such tasks.
Reward systems turn away from years spent in company, or seniority, and so on
to contribution and performance. Base salaries may be low, but bonuses for
performance are high.
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New World of Work
6 Advancement criteria change, form performance to ability.
Pay for performance, and promote for ability demonstrated to grow into a new
position.
7 Values change from protective to productive.
Do people behave as though the customers paid their salaries, or their boss paid
their salaries? It is not enough to preach customer values, if the management
systems then subvert them. At Xerox the warring among departments to fix
blame stopped when managers' bonuses got tied to a measure of customer
satisfaction.
Do people believe they fail or succeed as a team?
8 Managers change from supervisors to coaches.
Traditional bosses: allocate work, supervise, monitor, control, check work as it
moves. All this is done by teams themselves. No job here for managers.
But teams need coaches, need people to ask for advice or solve problems.
The characteristics of a manager are different from those of a worker, because
the former has to take pride in the the accomplishment of others.
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New World of Work
9 Organizational structures change from hierarchical to flat.
Many of the decisions that required managerial meetings for communication and
coordination of work, now get done by the teams themselves. It does not take
that much managerial effort as it once required to put the fragmented tasks
together again. Instead of departmental hierarchies, you now have strategic
business units. A manager can control only ~7 persons, but he can coach 4 times
as many.
10 Executives change from scorekeepers to leaders.
With re-engineered processes the team is doing the work and the higher ups are
brought closer to the customer. The executive do not control the processes, but
they do have responsibility to engineer and see to it that the processes are
working and are the right ones. They cannot just say: make 15% profit or I will be
very angry with you; they have to get in closer to the real work and lead.
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Business System Diamond
Business Processes
Jobs and
Structures
Management and
Measurement Systems
Values and
Beliefs
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Enabling Role of Information Technology
Using IT to speed up an existing process gives some advantage.
But using it imaginatively to do something never thought possible
before can cause vast improvements to occur.
Entirely new classes of applications can result from new
technology.
The new technology is not meant just to do the same thing faster,
but to create new needs (Say's Law in economics, supply creates
its own demand).
Alan Kay: "An important technology first creates a problem and
then solves it". It is no use doing market research on a technology
which consumers are unable to conceptualize. (e.g. Sony
Walkman).
It is the disruptive power of technology, its ability to break
the rules which limit how we conduct our work, that makes it
critical to companies looking for competitive advantage.
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Old rule: Information can only appear in one place at one
time.
Disruptive technology: Shared databases.
New rule: Information can appear simultaneously in as many
places a it is needed.
Old rule: Only experts can perform complex work.
Disruptive technology: Expert systems.
New rule: A generalist can do the work of an expert.
Old rule: Businesses must choose between centralization
and decentralization.
Disruptive technology: Telecomm networks.
New rule: Business can simultaneously reap the benefits of
both.
Old rule: Managers make all the decisions.
Disruptive technology: Decision support tools.
New rule: Decision-making is a part of everyone's job.
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Old rule: Field personnel need offices.
Disruptive technology: Portable computers and wireless comm.
New rule: Field personnel can send and receive information
wherever they are.
Old rule: The best contact with a potential buyer is
personal contact.
Disruptive technology: Interactive Videodisk.
New rule: The best contact with a potential buyer is effective
contact.
Old rule: You have to find out where things are..
Disruptive technology: Automatic identification and tracking
technology.
New rule: Things tell you where they are.
Old rule: Plans get reviewed periodically.
Disruptive technology: High performance computing.
New rule: Plans get revised instantaneously.
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The potential of technology to move a company ahead
dramatically has to be ongoing. In this way novel and
unexpected uses of technology can gain large advantages.
Imagination is needed.
Watch for technologies that are just demonstrable today.
Prepare internally to use them (conceptualize, evaluate,
prepare people, plan deployment) and then you can be 3 years
ahead when the technology actually arrives.
It is the disruptive power of technology, its ability to break
the rules that limit how we conduct our work, that makes it
critical to companies looking for competitive advantage.
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The Hunt for Re-engineering Opportunities
Org charts are well-drawn and visible. So are departments. But
what we re-engineer are the processes that go on to
accomplish a company's business, not the departments.
We need to create process maps for the processes and name
them in a way that shows the stat end end events.
At a high level hardly any company needs more than 10
processes to do its work. For example, TI had 6: Strategy Dev,
Product Dev, Customer Design and Support, Order Fulfillment,
Mfg Capability Dev,and Customer Communications.
Note that the Customer is right there in the middle as is not the
case in an org chart, and so are prospects.
If these processes are exploded you get sub-processes, again
numbering no more than half a dozen per process, and there
you will see who all are involved from which departments. The
departments are not eliminated, they are just welded into the
process maps and you will see where the important lines of
communication between departments have to be installed.
Process maps should only take weeks to construct
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Which Processes to Re-engineer?
Cannot do all the high-level processes simultaneously.
Select acc to :
Broken: is the process in deep trouble?
Importance: impact on the company.
Feasibility
Broken Processes
Symptom: Excessive information interchange, particularly control
information, and redundant data exchange and re-
keying, etc.
Disease: Arbitrary fragmentation of a process.
If lots of messages are flying about, the solution is not
necessarily to add more communication lines. People
should be calling each other less. It may be there is not
enough devolution of decision making. Or what they
are doing may be so closely linked that it should be
handled by one person, or one case team.
Well-designed natural organizational units should send finished
products to one another. Such units should have a thin pipeline
connecting them to the rest of the world.
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Broken Processes
Symptom: Inventory, Buffers, Redundant assets
Disease: Uncertainty in supply, unpredictability of demand.
Solution Don't try to control inventory with elaborate inventory
management schemes. Get rid of it. Plan. Manage the
uncertainty. Work with suppliers, customers.

Symptom: High ratio of work checkers, expediters and managers,
to work doers.
Disease: Fragmentation of work. Lack of inculcation of pride and
taking responsibility for work.
Solution Internal checks may be necessary for auditing and
control, but it should not become a governing principle.
When it comes to non-finance-oriented work, let the
workers do their own checking, perhaps in teams, let
them police the standards they are to attain, and build
that into the process.
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Broken Processes
Symptom: Rework and iteration.
Disease: (1) Lack of inter-communication throughout work
process to keep everyone informed; or (2) tools and
equipment and technique not refined enough for what is
being attempted.
Solution (1) Work as a process team responsible for end product
or service and communicate continuously during
work.(2) Invest effort in development or acquisition of
tools to bring process "in control".

Symptom: Too many special cases and exceptions, and therefore
process complexity to deal with it.
Disease: Originally simple process has been patched over and
over again.
Solution Restore simplicity by creating several simple processes
and deciding at the input which of several processes to
use. One standard process with complex decision points
all along its length is confusing and difficult and error-
prone.
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Which Processes to Re-engineer?
Consider the following:
Find the processes that most influence what a
customer values.
How big is the scope of the process: if it crosses many
departments and requires much change, it will have
less likelihood of success
If major investments are necessary, that is a barrier.
How much commitment of top management and the
process owner is there?
Is the process quite obsolete?
How does it compare with the best competitor's
comparable process?
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Understanding Processes
Step back and understand the current process at a high level.
Do not go into gory analytic detail.
Look from the output end and question is this the output that
is desired by the customer, or can the customer ask for
something more advantageous to his need?
Look for simple, inexpensive, changes that look at the output
from another standpoint and come up with different rules.
Customers always ask for the same thing a little better or
faster or more, in other words incremental change. But re-
engineering is about dramatic change.
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Understanding Processes
Old processes can take only so much fixing before the marginal
benefits are not worth the bother.
Get into the work environment and find out by watching. Do not sit
in the office and interview. Get to understand the business. It is a
source of ideas.
Having figured out what should be the real objective of the
process, learn just enough about the current process to to
understand its what and why and basic assumptions -- it is not
necessary to know its how because you are going to re-design it.
Consider the customer's underlying goals and problems, not just the
mechanics of the process that links the two organizations.
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Creative Redesign of Processes
Redesign suspends existing rules and values, and allows
imagination free play. It is not a formal deductive algorithm at
work.
But there are some precedents which will help
First get a representative team together that has the charter to
look into and improve some facet of the company's business
that is having problems
State the problems. Then in a 5 to 10 minute session have a
team leader present the process undergone (in prose or in an
annotated diagram). Get the team to refine it in case there are
any disagreements.
28
Begin brainstorming on the process.
Who are the people who make various decisions or
contribute information or do some work?
How long does it take at each station for a typical unit of
work to flow?
What iteration might be necessary?
Whether there is a categorization of the work which might be
relevant to deciding if a single process should be replaced
bb several processes treated differently? An 80-20 rule could
operate right at the start.
Does the customer get exactly what his real need is without
further work, or does the customer have to do more after he
gets the service or product from you?
Are the decisions taken as early as possible, or do you take
much additional time for checking?
Could the decision taken now at one point in the flow be
done at an earlier point, simple by changing the
responsibility, or assigning trust to an earlier person in the
flow, and doing aggregated checking later?
How many information systems are involved in delivering
the service?
29
Continue brainstorming on the process. Come up with big ideas.
Can one devise incentives for eliminating fraud or reducing
exposure when the decision is to be taken without checking?
What is the time penalty of delay for the organization? What
happens in the customer's mind when there is time delay?
Can you simplify things for the customer to notify you or
contact you when he needs a service or product?
Are there some unconscious rules or assumptions at work in
deciding at which point the service or decision is completed?
Can that rule be broken?
Can two actions which are sequential today, be done in
parallel? Can the result that will be known only at the end of
the first task taken into account later, after the customer has
been served?
If there is work being done to take care of the problem is the
customer made aware of that fact, and when s/he can expect
the completion?
Is the customer having to deal with a lot of different people to
get his work done or can he be kept insulated form the internal
intricacies of a company's working?
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Some principles to keep in mind:
Organize work around outcomes, not tasks.
Involve as few people as possible in the performance of
a process, if possible a single person with some help of
technology. Minimize the number of hand-offs.
Identify and annihilate assumptions.
Harness information technology.

Some lessons from experience:
You don't have to be an expert to redesign a process.
Being an outsider helps
Discard pre-conceived notions.
See things through the customer's eyes.
Redesign is best done in teams.
You don't need to know much about the current
process.
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Selling Re-engineering within the Organization
Two steps
Top management has to make the Case for Action
persuasively and tersely. Why must we re-engineer?
Top management has to come up with a Vision of what they
want to be. The destination of the re-engineering effort.

The First Step:
Makes the case for change, and forestalls attempts to
fight change.
Instills urgency.
The Second Step:
Articulates the purpose of the change.
Scopes the extent of change needed.
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Case for Action
Summarize what is happening, what is changing in the
business environment in which the company operates.
State frankly the business problem.
Identify what are the new marketplace demands,
perhaps being satisfied by your competitors.
Diagnose important reasons why your company is
unable to measure up to the demands.
Estimate the cost of inaction to persuade everyone of
the need for re-engineering.
Must galvanize managers and employees to action,
and fight off the lethargy of those on the sidelines.
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A Vision is an image without great detail:
Must be powerful and visionary, not blas.
Must act as a flag to rally people when morale sags.
Focuses on the essential and prevents people from
being sidetracked.
Provides a yardstick for measuring progress.
Cuts through the doubt and uncertainty at the
beginning of the change process.

A Vision must suggest concretely how the company wants to operate.
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Bell Atlantic Carrier Access Service Re-engineering
It took 15 to 30 days to connect a customer to his chosen long
distance carrier.
Competitors in metro areas were laying optical fiber to their
door and doing it in one-quarter the time!
Study found there were 13 hand-offs and 27 different
information systems involved. Slow and expensive.
Actual work involved was only 10 hours.
Met their customers AT&T, MCI, Sprint to appreciate needs:
on-demand connection and zero defects.
Set up a team to re-design with the goal of zero cycle time.
Key operating problem of the CAS division was recognized.
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Team was staffed by a woman with high respect and good
communication skills. Had experts from all the disciplines in the
fragmented CAS process.
The challenge of zero cycle time meant it needed selling to convince
people to take on the problem.
In one month they redesigned the process.
Physically pulled together under one common supervision all
the functions of the old process.
Eliminated geographical dispersal and separate management.
Solved the fragmentation which was at the core of the problem.
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At this point a lab team implemented the redesigned process in a
pilot project in one area and was empowered to make whatever
changes it needed.
The lab team had operational responsibility and reduced the time to
days instead of weeks, sometimes hours only..
Then extended to all areas of Bell Atlantic operation the same
process.
Identified culture changes.
Identified new job skills.
Identified modified information systems needed to support.
Commitment to making things happen replaces
compliance with doing what the manager tells.
37
In the next step the case team to deliver the CAS service will
be replaced by one case worker plus some new technology.
One worker will take the customer request and from his/her
terminal will make all the electronic connections necessary to
complete the request.
After doing the connection s/he will do all the work needed to
bill and keep records.
In a later step the customer will be able to interface directly to
the Bell Atlantic CAS system and have their request done
without intervention of a BA worker at all. Self-provisioning!
Zero cycle time will be achieved in 3 steps, and there will be great reduction
in cost, increase in customer satisfaction and elimination of errors .
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My Questions
What happens to all the people laid off?
Growth in productivity is at the cost of unemployment, as the
recent US phenomenon of "jobless growth " demonstrates.
If you need more generalists, how come we train specialists
only (e.g. in medicine where specialists constitute 75% of
medical students graduating in USA)?
And we recruit on that basis also.
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KINDER, GENTLER REENGINEERING
A follow-up to the enormously popular book "Reengineering the
Corporation," the new book "Reengineering Management" (by one of the first
book's co-authors) offers a less aggressive plan for management action.
Instead of the tough-guy approach of the first book, James Champy
proposes a "new mindfulness" characterized by trust, integrity, imagination,
and a cooperative spirit. The book's wisdom in a nutshell: The purpose of a
business is
1) to serve customers,
2) do useful and meaningful work,
3) create an organizational culture that serves people's needs,
4) act in a "mentoring, participative" manner rather than an autocratic one,
and
5) have employees who can work as a team and communicate with people.
Champy admits that the reengineering movement has not fulfilled its
promise, and blames this failure on managers who continue to operate with
obsolete thinking. (James Champy, "Reengineering Management," Harper
Business, 1995)

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