Business Process Re-engineering and Beyond

Business Process Re-engineering and Beyond There is still a gulf between the number of companies doing it and doing it well By John Makulowich Strip away all the just-in-time verbiage, the tired phrases hyping yet another seminar or the bureaucratese promoting a self- serving government contract; the critical issue for business process re-engineering is competitive advantage. Yet for the great majority of companies, doing it and doi

Business Process Re-engineering and Beyond

There is still a gulf between the number of companies doing it and doing it well

By John Makulowich

Strip away all the just-in-time verbiage, the tired phrases hyping yet another seminar or the bureaucratese promoting a self-
serving government contract; the critical issue for business process re-engineering is competitive advantage.

Yet for the great majority of companies, doing it and doing it well are still miles apart.

Look at General Motors which organized its Saturn development effort to bring out the best from its employees, production technology and information systems, resulting in a top-selling, well-regarded auto, according to Effy Oz, associate professor of management science and information systems at Penn State University's Great Valley campus, Malvern, Pa.

In contrast, look at CitiCorp's 15-minute mortgage approval plan which failed because of unpredicted technological problems, Oz says.

Working with Fortune 1,000 clients in the trenches on BPR - and its previous incarnation, Total Quality Management - is Gail Steinel, a partner with Arthur Andersen Business Consulting, New York, who leads the firm's re-engineering practice and co-leads the Revenue Enhancement Competency Center.

Steinel pushes for a balance between "cost-cutting" and "revenue enhancement" initiatives. She sees a significant increase in the number of companies taking a complete "end-to-end" rather than functional view of the re-engineering process.

In line with other experts, she views BPR as a radical jump in performance and a radical change. While continuous improvement and TQM are more ongoing programs, companies can have both initiatives occurring at the same time. She sees TQM focused on corporate culture and BPR a radical reassessment of where the organization is.

Gail Steinel, a partner with Arthur Andersen Business Consulting in New York.

"Where is BPR going next? Unfortunately, BPR became equivalent to cost reduction in a lot of companies, [and there was] too much focus on reducing fat rather than radically redesigning," says Steinel.

After the radical re-evaluation called for by BPR, she suggests a second-level look at continuous improvement and BPR philosophies, a focus on the end-to-end process directed at customers' needs.

"You have to truly reorganize a company in a process way instead of functionally. You have to develop a virtual skill network," says Steinel.

For example, she cites the different functions from sales all the way through collection, pointing out that the company needs people who can manage skills and skill networks.

"Another instance is the Internet, where the convergence of technologies is bringing about a new distribution channel affecting both information technology and marketing. The typical manufacturing is segmented into marketing and sales, manufacturing, operations [and] finance. But customer contact cuts across all functional departments. Instead of that approach, take the organization chart and put it horizontally. Create a vice president of customer contact. This forces the company to focus on the customer. The company needs to focus on how to retain the skills focus, to manage a skills network," says Steinel.

This approach, according to Steinel, would improve business performance growth as well, since like a pendulum it would balance the need to increase revenue and reduce costs.

"This whole issue is all about managing the customer base. That involves three things: identifying the customer market you want to serve; creating the customers; and retaining them as a loyal base. You have to look at this process in an integrated fashion and recognize that not all customers are the same," says Steinel.

And how does one decide on which customers to serve? Not just by volume or growth, but by the cost to serve them. The question, she says, is will the cost of serving these customers lead to profitable growth? That profitable growth is measured by the rate of return that shareholders expect on their investment.

"It may well be that you need to radically redesign each time you see a major new market in order to serve that market in the most cost-effective way possible," she says.

BPR's Beginnings

Much of the focus on quality started 20 years ago among manufacturing companies responding to Japanese automotive companies, said James W. Dean Jr., program director for Transformations to Quality Organizations of the National Science Foundation, Arlington, Va.

"At the time, inconsistent quality was seen as a problem. Since then, the quality movement has spread. After manufacturing, it was picked up by service organizations and most recently by health care and education. Even public agencies at all levels are getting into the picture. The impetus to adopt quality boils down to competitive threats of one kind or another .... For example, government agencies are challenged by their constituencies to perform," says Dean.

He quickly points out that it takes years before companies can expect to see significant results after setting up a quality management program.

"Early in a quality program, you frequently see companies go after so-called low-hanging fruit, cost-reduction measures like overhead items. But changing an organization is not a one-time event. And cost reduction is certainly not the whole picture of quality," notes Dean.

Dean recently published guidelines for the third year of an NSF program that supports interdisciplinary research on quality. Among the areas in quality practices to which he directed research attention were customer focus, process improvements and breakthroughs, and teamwork and collaboration. He also added research areas that integrate these quality practices, such as organizational change, innovative engineering and information technology methodologies, and the role of ethics in quality transformation.

-John Makulowich

What's Next?

One person shaping the future now, who specifically addressed the issue of what comes after BPR, is William A. Wheeler III, a former partner at New York-based Coopers and Lybrand in its High Technology Practices Consulting. He co-authored, with Patrick McHugh and Giorgio Merli, the book, "Beyond Business Process Reengineering: Towards the Holonic Enterprise."

For Wheeler, a holonic enterprise is a flexible network of virtual companies, each of whom features world-class core competencies. As examples, he cites the travel agent who coordinates different holonic nodes to satisfy a trip request and Austin, Texas-based Dell Computer Corp., which uses American Express to manage cash flow and outsources the manufacturing of some of its computers. He also mentions Erie Bolt Co., now known as EBC Industries in Erie, Pa., a relatively small company that brings in a number of different companies with different skill sets to bid on large projects.

After 30-plus years in quality, having studied with the legendary quality guru Joseph Juran, Wheeler admits he is hard-put to offer an acceptable definition of quality.

"Other than some form of exceeding customer expectations, quality is hard to define," says Wheeler. "For me, the biggest single difference between TQM and continuous improvement on the one hand, and BPR on the other, is that in practice TQM tends to be a very small-step incremental improvement program. More times than not, TQM does not make the breakthroughs. You use BPR to leapfrog the competition or to make significant impact. Put it this way: TQM is a preferred precondition for BPR; you can't just do BPR out of the blue."

Like the other experts interviewed, he dates the beginning of BPR in 1990 with a paper published in the Harvard Business Review by Michael Hammer, "Reengineering Work: Don't Automate, Obliterate."

Wheeler sees a series of steps necessary to reach the stage of holonic enterprise.

"First, the world-class processes of the organization must be in order. You can't do BPR without that. Once I get the core processes running smoothly, I skinny down my organization around it. Then I go out and join with other organizations who have optimized their core processes," says Wheeler. The Department of Defense, he says, is having to look seriously at holonics, to skinny down its supplier base.

To make the holonic enterprise operate successfully, he notes that at least two elements are needed. First is the entrepreneurial ability to judge what the market wants. As he points out, nobody asked for Federal Express, nobody asked for the Eastern Shuttle, nobody asked for the Sony Walkman. The executives who created those companies took the existing platform and totally rearranged and rethought it. The second element is trust, with each node, as he puts it, "projecting ultimate trust. The holonic networks we studied fall apart by weak links in trust."

Wheeler sees the Internet as catalyzing the need for holonic networks, accelerating the move to mass customization and undermining the original notion of BPR.

"The Internet is going to shake out a lot that BPR has done and make it obsolete. BPR as practiced today takes a given process, for example, customer acquisition through satisfaction, and does a super job of streamlining it. However, the Internet as a totally new way of acquiring and satisfying customers, is going to result in a real shakeout. All the TQ skills on the retail side may be thrown out. The key now is not the process of customer acquisition, but of customer finding," says Wheeler.

The Integration Piece

For professor Oz, information technology is no longer about just physical integration and code writing. "Clearly, there is a new use of systems integration that we encourage, that is, to see integration as a coherent piece, not as a collection of physical systems, information technology and people. In fact, the first thing that students learn is to analyze and understand the business of the companies they will work for, that information technology is no longer simply the business of information technology, but the business of consulting.

"My MIS philosophy, as it were, is to ask first, 'what is the business?' The question is what is the business problem or what is the business opportunity. Can we do it with IT and telecommunications? But not many companies ask these questions, notes Oz, who now has two chapters in press on re-engineering issues, titled, "Systems Integration: A Tale of Success; A Tale of Failure," and "Lessons Learned: Ethics and Failure in Systems Integration: A Case Study," in the book, "Re-
engineering Systems Integration."

From an academic viewpoint, he admits that there is not much scientific information about what makes a systems integration project succeed or fail. In the Saturn case, General Motors successfully introduced the Saturn car after developing a grand "plan of three:" people, technology and systems.

"The fact is they came up with a good system which provides excellent communication with dealers. There is even a chip in the chassis that collects data about the car. The program was well-planned and well-executed. In the area of systems integration, it's a good example of systems development and integration, letting different groups develop different systems and then letting one department integrate them all," says Oz.

The example of failure was CitiCorp's 15-minute mortgage loan approval. One of its problems was the desire to implement the system as soon as possible, not when it was ready. For Oz, it was a good business idea with a bad business implementation caused by lack of attention to potential technological problems.

For Roberta S. Russell, professor of management science and information technology at Virginia Polytechnic Institute and State University's Pamplin College of Business in Blacksburg, Va., BPR comes to the fore when you have done all you can with continuous improvement.

"What is interesting is looking at BPR as strategic quality management. Rework your processes in order to get to your goal. Jack Welch, head of General Electric, notes it's continuous improvement versus breakthrough improvement. The culture has to be ready for BPR, so TQM is a necessary condition for BPR," says Russell.

The benefit of BPR, from her standpoint, is that breakthroughs put you on a different path, representing a leap ahead. In many cases, companies are so far behind that they could not do continuous improvement. Yet, once doing BPR, many companies find it hard to get back to continuous improvement.

"When they're not in a crisis situation, they find it hard to generate breakthroughs, to set goals high enough. One of the analogies I like to use comes from the literature for weight gain. BPR is working real hard with a strict diet. When you return to normal eating habits, you often wind up heavier than when you started. Obviously, you can't maintain a strict diet for a long period of time. Thus, you need to practice continuous improvement," says Russell.

She cautions that companies can let core competencies become rigidities and stresses the need to set up the company as changing organizations willing to share problem solving, tied into re-engineering and always ready to change. "Obviously, the company can't respond to every change. What's needed is a compass at the top. As one expert said, when you're lost in the swamp, a road map won't help. Thus, you need to give employees a compass," says Russell.


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