Critique on Reengineering the Corporation

Executive Summary

• Reengineering, as described by the authors, requires tremendous courage and perseverance. Traditional roles will change. People naturally resist change, especially this radical. The committee feels that incremental change or minor improvement of existing processes is not keeping with the sprite of this book.
• The old organization chart will have to be discarded. Instead of organization built around areas of expertise (Sales, Marketing, Production, etc.), it will be built around processes. Process that create value for the customer and profit for the organization must be identified.
• A complete rethinking of role of the Information Systems (IS) department will be necessary. The department has traditionally been thought of as a cost center. In this new system, IS solutions (expert systems, wide employee access) are often cited as an integral part of the solution. Complete trust and confidence must be given to this group.
• Job descriptions and compensation will have to be examined. Employees empowered to do more will not be satisfied with the same salery/career paths as before.
• Clear goals must be articulated from upper management. Traditional vision statements like “We will be number one in our industry” will suffice. This will need to be replaced by “We want to increase production by one third with the same costs as today” . There must be a compelling reason to change.
• One process needs to be focused upon and reengineered at a time. To many process changes will paralyze the organization and result in no action. When this change is successful, others will be inspired to suggest other process changes.
• Everyone must accept change as part of the structure of the organization and their working lives. Otherwise, they should leave the organization.

Chapter 1 : The Crisis that will not go away

• There were no or very few competitors
• There was a scarcity of goods so simply supplying a product was enough to satisfy a customer
• Economies of scale as a result of division of labor caused increased dexterity and time efficiency in production.

This is no longer true for corporations. Circumstances have changed dramatically. Advances in the Information Technology (IT) coupled with three powerful forces have emerged: Customers, competition, and change

Customers

• Are aware of the products, quality, prices and services available for them more than ever before (Ex: Internet access for the public) They are in charge and their expectations are high because they know what is available. There are no shortages of goods, for the most part.

Competition

• Has increased dramatically. Start up companies emerge having the advantage of not having nothing to unlearn and they became competitive very quickly. (Ex: Desktop publishing can be started for a relatively small amount of money)
• The best products become the standard promptly.

  Change becomes constant.

  The quickening pace of technological advances shortens the product life-cycle. Having the best product is not a tranquil situation anymore because it may be obsolete quickly. The remedy lies with organizing companies around processes instead of departments and division of labor. Fixing or trying to improve parts doesn’t affect the whole. The entire organization needs to be redesigned , reinvented, or reengineered.

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  Chapter 2: Reengineering The path to Change

  What is reengineering?:

  “Starting over, going back to the beginning and inventing a better way of doing work. 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.”

  What is a business process?

  “A collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. Reengineering is not about marginal improvements, its about dramatic improvement, looking for breakthroughs, it’s not about task-based thinking it’s about process-based thinking. Reengineering is also about radical change, going to the root and changing the entire processes from beginning to the end. Business reengineering is about processes, it’s not about the administrative organizations or departments.

  Business reengineering can create dramatic improvements if done properly. In the examples given, IBM Credit increased its productivity one hundred fold while Ford Motor and Kodak also had similar improvements after making radical change to the process as a whole.

  The critical factors which determine success or failure of business reengineering are:

  • Process orientation: Assessing the entire processes even if goes over organizational boundaries
  • Ambition: Marginal improvements is not reengineering, goal is dramatic breakthroughs
  • Rule-breaking: The companies undertaking reengineering should break all the traditional rules and assumptions
  • Creative use of information technology: IT should be used as an enabler . Without IT, reengineering wouldn’t work.

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  Chapter 3 : Rethinking Business Processes

  The industrial model assumed that people have very few skills and little capacity, and training them was time consuming, hence not efficient. So the jobs were kept simple and easy. In reengineering we also want to keep processes simple but the tasks are combined and compressed into one. The person doing the end-to-end process is a case worker and when more than one person is involved in the process, it is called case team.
  Integrated processes both vertically and horizontally have several benefits:
  • Reduce process administration overhead, less supervision is needed.
  • Fewer impediments to job performance, greater empowerment of the workers and improved customer response.
  • Workers make decisions that were made by management in traditional organizations.
  • “Delinearizing” speeds up processes because jobs are done simultaneously,
  • Multiple processes can be practical and efficient.
  • Minimizing costs associated with excessive checks and controls by tolerating modest and limited abuse
  • Reconciliation of numerous tasks is minimized.

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  Chapter 4: The New World of Work:

  • This main point of this chapter is that "... reengineering a company's business processes ultimately changes practically everything about the company." These changes include:
  • Work units change - from functional departments to process teams.
  • Jobs change - from simple tasks to multi-dimensional work
  • People's roles change - from controlled to empowered.
  • Job preparation changes - from training to education.
  • Focus of performance measures and compensation shifts - from activity to results.
  • Advancement criteria change - from performance to ability.
  • Values change - from protective to productive.
  • Managers change - from supervisors to coaches
  • Organizational structures change - from hierarchical to flat
  • Executives change - from scorekeepers to leaders

  The most important change is that employees become far more customer, performance and marketing oriented. They change their beliefs to "the customer paying their salaries and ... that they must do what it takes to please them." With reengineering, employees feel "...they get paid for the value they create" and that they "...must accept responsibility for their problems and get them solved"

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  Chapter 5: The Enabling Role of Information Technology

  This chapter stresses that modern information technology ["IT"] is "has an importance to the reeengineering process that is difficult to overstate." It can be an "...essential enabler ... since it permits companies to reengineer business processes." IT must be used properly, though. Not using IT correctly "...can block reengineering altogether by reinforcing old ways of thinking and old behavior patterns."

  It is critical that managers and executives begin to think inductively; most only know how to think deductively. Inductive thinking requires the "...ability to first recognize a powerful solution and then seek the problems it might solve." This differs from deductive thinking, which is "defining a problem(s), then seeking and evaluating different solutions to it." Thinking inductively will allow major, not just marginal, improvements. It will allow companies to respond better to customer needs. Many of these needs are ones that customers are not currently aware of ! The Xerox 914 copier is provided as an example. Initially many could not see the need for investing in xerography as a replacement for carbon paper.

  IT has "disruptive power." This power is the "... ability to break the rules that limit how we conduct our work, that makes it critical to companies looking for competitive advantage." A number of disruptive technologies and how they have changed "old rules" to "new rules" are discussed. These include databases, expert systems, telecommunications networks, decision support systems, wireless data communication and portable computers, interactive videodisks, automatic identification and tracking technology and high performance computing. An example given is that expert systems now allow generalists to do the work that only an expert could once do.

  The authors say that "... merely throwing computers at an existing business problem does not cause it to be reeengineered" . Planning is important. Companies must study new technology and understand its potential uses. They should do this even before a new technology becomes available. Doing this will give a company a significant lead on competition; the authors say it can be three years or more.

  People begin the Reengineering processes. How companies select and organize the people who do the work is the key to the success of the endeavor. There are five roles in the process. The relationship among these is:
  The leader appoints the process owner, who convenes a reengineering team to reengineer the process, with the assistance from the czar and under the auspices of the steering committee
  

  • Leader-a senior executive who authorizes and motivates the overall reengineering effort focused on it.
  • Process owner- a manager with responsibility for a specific process and the reengineering effort focused on it.
  • Reengineering team- a group of individuals dedicated to the reengineering of a particular process, who diagnose the existing process and oversee its redesign and implementation
  • Steering committee- a policy-making body of senior managers who develop the organization’s overall reengineering strategy and monitor its progress.
  • Reengineering czar-an individual responsible for developing reengineering techniques and tools within the company and for achieving synergy across the company’s separate reengineering projects

  What Are They Doing?

  Leader - The reengineering leader makes reengineering happen. It’s a self-nominated and self-appointed role.

  The role requires someone who:
  

  • Make someone who makes them want what he/she wants
  • Has enough authority over all stakeholders in the processes that will undergo reengineering to ensure that reengineering can happen.
  • Can demonstrate leadership through signals, symbols and systems

  The leader’s job is to
  :

  • Act as visionary and motivator
  • Creates the mew vision and sets the new standard and, through the owner, induces other to translate that vision into reality
  • Creates an environment conducive to reengineering.

  Process owner - They make reengineering happen in the small at the individual process level:
  

  • Obtains the resources that the team requires
  • Runs interference with the bureaucracy
  • Works to gain the cooperation of other managers whose functional groups are involved in the process
  • Motivate, inspired and advise their team

  Reengineering team - They are the people in charge of reinventing the business. A company attempting redesign of more than one process will have more than one reengineering team at work. The team members can be insiders or outsiders. Insiders will act as key agents in convincing the rest of the organization to buy into the changes. Outsiders bring a higher level of objectivity and a different perspective to the team. The core team usually supplemented with an outer ring of part-time and occasional contributors.

  Characteristics of the team:
  

  • Has no official head
  • Members should remain on the team at least through implementation of the first field pilot site
  • Incentive is the effective way to get work done

  Steering committee : The leader should chair this group:
  

  • Decide the order of priorities among all the competing reengineering projects and how resources should be allocated.
  • Hear and resolve conflicts among process owners

  Reengineering czar : Serves as the leader’s chief of staff and reports directly to the leader. Czar could prove disruptive by becoming too controlling and forgetting who the boss is:
  

  • Enable and support each individual process owner and reengineering team
  • Coordinates all ongoing reengineering activities

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  Chapter 7 - The Hunt for Reengineering Opportunities

  Processes are the focus of reengineering. One way to get a handle on the processes is to give them names. Their names should imply all the work that gets done between their start and finish. Once the processes are identified and mapped, the company should decide which ones require reengineering and prioritize. Three criteria will help the company make decisions:
  
  • Dysfunction-which processes are in deepest troubles. The symptoms could be:
    
    • 1) Extensive information exchange, data redundancy
    • 2) Just-in-time inventory and little buffer caches of work
    • 3) High ratio of checking and control to value-adding
  • Complexity, exceptions and special cases in processes
    • 1) Importance-which processes have the greatest impacts on customers
  • Feasibility-which processes are, at the moment, most susceptible to successful redesign.

  Once the processes has been selected, the next step is to understand the current process: What is does, how well it performs, and the critical issues that govern its performance. The best way for the reengineering team to understand, not analyze a process, is from the perspective of the customer.

  • What are the customers’ real requirements?
  • What problems do they have?
  • What do they say they want and what do they need ? Are the two different ?
  • What processes do they perform with the your output?

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  Chapter 8 : The Experience of Process Redesign

  Process redesign requires uncertainty in its outcome. The design team is free to recommend anything that it wants. What it recommends will be radically different from old practices, past experience will not be a guide. The team itself will not be able to predict the outcome of the reengineering.

  The authors gives several examples of fictitious companies and what the process should look like. The example of Imperial Insurance, trying to improve their claims processing, shows how the process should begin. Perceptions were challenged. Claimants were no longer thought of as a cash flow for the company, but rather a marketing opportunity. The public will see how well our customers are treated through efficient claim processing. When the inevitable objections are raised, solutions can often be found in existing processes.

  The above mentioned is a vivid example of the benefits of reengineering. It breaks the norm and brings us to think skeptically about the processes that we are going through and then ask ourselves “Does it have to be this way?”. To find a better answer, we need to look for an entirely different answer instead of improving what we already have.

  Many employees or managers will not oppose the idea of reengineering. They will find it bold and exciting if properly executed. However, for others, accepting a new way of doing business and then functioning in the new process design is impossible.

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  Chapter 9. Embarking on Reengineering

  Management must establish a case for reengineering and a specific vision statement. This sends a loud and clear message to the employees about how the company is going to operate. In reengineering, the company has a very specific goals. For MacDonald’s , it could have been “To serve each customers within three- minute wait time” and here is how we are going to do it.

  Reengineering should be implemented by smallest number of people possible. It is not the obvious decision of scraping the old and following the new. Uncertainty can be overcome by focusing on a clear sense of direction and a detailed, process-oriented way of accomplishing it. This, together with a dedicated work force that holds firmly to its beliefs, will achieve success.

  Hallmark embarked on reengineering when it was doing well, not in response to any life-threatening problem but a farsighted effort to keep such problems out of the company's future. Re-engineering was a preemptive strike for Hallmark. The company is examining every aspect of its operations with the objective of dramatically reducing the time that elapses from noting a new market need to filling it with a card on the retailer's shelf.

  Business Trends

  Channels of distribution were expanding:
  Walmart and K-Mart were also demanding tailored products and marketing programs from Hallmark's Ambassador division for each of their thousands of stores.
  Huge proliferation of products:
  
• The need to focus on smaller and smaller niches.
Major change wanted in operations:

• How Hallmark's artists editors and other creative people worked together to conceive new products.
• How sales data was collected and used to improve product replenishment, marketing and promotional campaigns.
• How Hallmark could manage graphics production and printing costs in the face of our proliferating products.

How could Hallmark satisfy the needs of ever-demanding, larger retailers ?
After identifying and understanding the questions, the challenge then became communications.


• There will be a change in the ability of Hallmark to get to market, but not a change in beliefs and values.
• Processes must change and that change is driven by the common goal of improved performance at retail.
• Hallmark is looking for everyone to work smarter, not harder.

Information Technology's Role:
Typically, more information-is-better-than-less attitude. Then making the torrent of data meaningful to the management. Knowing exactly what sold yesterday, where it sold, what it sold with, what part of the day it sold, and what display it came out of will make dramatic and exciting changes to the business. As a result, Hallmark is more confident in suggesting major product and format reform changes to the retailers because hallmark has retail, not wholesale, data.

Process change of bringing people together in group that across disciplines, departments, floors and even buildings, cuts down the product development cycle. It also gives people instant gratification. In summary, the reengineering effort of Hallmark centered on:


• Communication: make sure everybody understand reengineering (and getting ideas across)
• Get people to commit to re-engineering
• Goals setting and emphasizing that reengineering is not an one-time trip.

Taco Bell

Before reengineering, Taco Bell was a top-down, "command-and-control" organization with multiple layers of management. The more commands and controls in the system, the more the system justified its own existence. The traditional thinkers in those days believed they knew what customers wanted without even asking them. However, from the customers point of view, all this did not really matter. What customers wanted was good food served fast and hot, in a clean environment and at a price that they can afford. The reengineering effort was aimed at satisfying only one question: every justifiable change should add value for the customer.
Some of the highlights of the changes include:

• Elimination of the middle management
• K-Minus--kitchenless restaurant. As a retail service and customer-driven company, Taco Bell should retail food, not manufacture it.
• TACO--Total Automation of Company Operations--put the power of computing technology in the hands of employees, reduce administrative time that is better spent directly serving the customers.
• Exploring new points of distribution-- airports, vending machines, etc.

The company became more efficient and successful because it removed a multi-layer bureaucracy and focused on customer service.

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Analysis: Possible Concerns

• Software for IS may be composed by consultants or transient employees. Competitors can easily get the same expertise.
• IS projects are often delayed and over budget because of sheer complexity. Leading edge technology exasperates this tendency.
• Special circumstances surrounding small businesses or subsidiaries is not discussed.
• Human resources management intensified. Poor morale or employee turnover have much higher cost to the company.
• Reeingineering perceived as prelude to downsizing. Employees may not be cooperative.

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