IV. BUSINESS PROCESS REENGINEERING
Organizations must satisfying their customers by effectively delivering the right products and services at both the highest level of quality and the lowest level of production cost--not an easy task. One objective should not be compromised for another.
Reengineering Defined
The National Academy of Public Administration defines business process reengineering as:
...a radical improvement approach that critically examines, rethinks and redesigns mission product and service processes within a political environment. It achieves dramatic mission performance gains from multiple customer and stakeholder perspectives. It is a key part of a process management approach for optimal performance that continually evaluates, adjusts, or removes processes.
Business processes are the end-to-end work activities required to provide products and services to customers, end-users, or client groups.
Edwards Deming suggests that management must really understand their business processes at the grass roots level in order to successfully manage the implementation of major improvements. [1]
For most organizations, optimize business processes requires major changes in policies, procedures, organization structure, management philosophy, and use of technology.
The process orientation crosses the boundaries between organizational subunits or functions and often crosses organizational boundaries as well.
o A vertical view of an organization is replaced by a horizontal view of many interlocking processes.
o All of the processes in an organization form a total delivery system for services and products.
A well-designed BPR focuses on "value-added" activities in delivering enhanced products and services to internal and external customers of the organization
BPR is normally used where there is a substantial gap between what customers and stakeholders expect and actual organizational performance.
Some authors have argued that continuous improvement--many small changes by empowered teams--is preferrable to the more dramatic changes that often are recommended through a enterprise-wide BPR initiative.
The BPR Body Of Knowledge -- An Overview
Michael Hammer is generally credited with coining the term "reengineering" in a 1990 article in the Harvard Business Review.
o Traditional methods of improving business performance have not produced the desired results.
o Information technology has not been the solution either--only resulting in inefficient processes being performed more quickly.
Reengineering requires that the organization recognize its problems and seeks to dramatically overhaul the way it does business.
A "go-for-broke" approach that entails setting aside any preconceived notions of how the organization views its structure and ways of doing business.
Many organizations have become so inbred to the manner in which work is performed that it is hard to see any other way.
In a follow-up book, Reengineering the Corporation (New York: HarperCollins, 1993), Hammer and James Champy clearly identify the root cause of what is wrong with the way many American companies do business. They then proceed to outline, in very concise and clear language, the steps organizations should take to reengineer their business processes.
Hammer and Champy suggest that many companies still adhere to the nearly 200-year-old Adam Smith concept of work structure which, in their opinion, no longer applies in the dynamic, global-driven age in which companies have to compete.
The key to reengineering lies in the need to have a willingness to start afresh--that is, with no preconceived notions as to the best way to organize to do business, to the methods employed, to the technology used in producing goods or services.
On the downside, many reengineering efforts (by some estimates 50% or more) do not succeed, or at best yield only marginal improvements.
Following Hammer, numerous books were published on effecting dramatic and radical changes in an organization. The following books are now considered "classics".
Thomas Davenport, in Process Innovation: Reengineering Work through Information Technology (Cambridge: Harvard Business School Press, 1993), makes the point that marginal improvements in operating performance will simply not work to ensure long-term survival in today's global economy and atmosphere of intense competition.
o Davenport describes in detail the tools and techniques to be used in analyzing what a company is about and how it goes about carrying out its business.
o Davenport explains how the reengineering effort impacts virtually every aspect of the organization -- everything from the structure of the organization to the roles and responsibilities of top management and the typical worker.
H. James Harrington, in Business Process Improvement: The Breakthrough Strategy for Total Quality, Productivity, and Competitiveness (New York: McGraw Hill; 1991), suggests that management spends too much time correcting problems that should not have occurred in the first place, if business processes were correct.
o The major objectives of Business Process Improvement (BPI) are to make processes effective to achieve desired results; to make processes efficient to minimize resources; and to make processes adaptable to meet both customer and business changing needs.
o Harrington advocates the formation of an Executive Improvement Team (EIT) which is charged with the development a model using a five-phase approach: (1) organizing for improvement; (2) understanding the process; (3) streamlining; (4) measurement and control; and (5) continuous improvement.
o A Process Improvement Team (PIT), consisting of from 4 to 12 members representing all of the department involved in the process, is then established to: (a) flowchart the process; (b) gather process cost and quality information; (c) establish measurement points and feedback loops; (d) qualify the process; (e) develop and implement improvement plans; (f) report efficiency, effectiveness, and change status; and (g) ensure process adaptability.
Continuous improvement--many small changes by empowered teams--tends to be incremental, focusing on specific functional areas within an organization, and often originate from the "bottom-up". Bold BPR initiatives should drive continuous improvements, which, in turn, should sustain the periodic re-evaluation of basic processes.
Sharon L. Caudle, in Reengineering for Results: Keys to Success from Government Experience (Washington,.D.C: National Academy of Public Administration, 1995), notes that for decades, government officials followed the dogmas of the quiet past in doing government's work.
Legal mandates or internal tradition built a morass of processes which did little to serve the customer of government products and services.
o If reengineering of basic government processes does not occur, those who rely on government products and services remain as frustrated victims of poor government performance.
o Government managers and staff must be involved in process improvement strategic planning and making decisions on what projects to take on and how to allocate resources.
Functional Process Improvement (FPI)
Functional Process Improvement is a variation of Business Process Reengineering which has been developed and applied by the Department of Defense.
The Functional Process Improvement cycle is broken down into six different actions: Define, Analyze, Evaluate, Plan, Approve, and Execute.
Define: The cycle begins by defining the baselines, objectives, and strategies for the particular Function under analysis.
o Baselines describe the current status of the Function in terms of processes, costs, performance measures, and other attributes.
o Objectives identify the future direction that the Function should take given its baseline.
o Strategies describe, in general terms, how the Function will get from its baseline to its objectives.
Analyze: A structured approach is provided for documenting current processes and for understanding how improvements to those processes might be achieved.
Evaluate: Improvement opportunities--which describe what should be changed--are converted into initiatives by considering how the improvement opportunities should be implemented.
o Functional Economic Analysis (FEA) is used to evaluate the alternatives by constructing financial and non financial measures of merit to help determine the best course to follow.
o The primary focus is a comparison of baseline and alternative costs using economic analysis techniques
o The FEA presents the case for investments in process changes by collecting information relevant to the decision and displaying that information in standard formats.
Plan, Approve, and Execute: Once a promising alternative is selected, the more detailed planning required to implement the alternative is performed; approval of the proposed changes is obtained; and the changes are executed.
Three general principles guide the development of the Functional Economic Analysis methodology:
Functional Focus: FEA focuses on evaluating changes to functional processes, not information systems to assure that client/server environments are selected because of the benefits they will deliver to the functions of the organization, not solely because of technological considerations.
Measurement: The FEA methodology requires measurement of key attributes of functional processes--such as costs and outputs--important in assessing the current state of the Function, in setting substantive objectives, in evaluating alternative ways to achieve those objectives, and in gauging progress toward the objectives.
Management Tool: The FEA is designed to be an ongoing management tool--not a one-time reporting requirement--to support the functional manager in responding more quickly and consistently in the analyses required for the existing acquisition and programming/budgeting processes.
Functional Process Improvement is an iterative process: after one round of changes is under way, the search for more improvements begins again.
Business process reengineering involves four fundamental components which are central to any organization: (1) defining organizational strategies; (2) improving processes; (3) developing people; and (4) applying technology.
Defining Strategic Goals and Objectives
Formulating a strategic plan is a prerequisite for the effective application of business process reengineering, whether in the private or public sector.
o Strategic planning has evolved as a response to the need for a more dynamic planning process which would permit continued efficacy of decisions to be tested against the realities of current conditions and, in turn, corrected and refined as necessary.
o The term "strategic" denotes the linkage with the goal-setting process, the formulation of more immediate objectives to move the organization toward its goals, and the identification of specific actions (or strategies) required in the deployment of organizational resources to achieve these objectives.
o The emphasis in strategic planning is on an orderly evolution--from a broad mission statement, to statements of more specific goals and objectives consistent with the organization's mission, to more explicit policies and implementing decisions.
Business process reengineering is all about change. and to facilitate change, it is essential that a broad strategic vision be shared across a significant segment of the organization.
o Involvement of senior management is critical during this phase of the BPR.
o Strategic goals and objectives must reflect a clear understanding of the values of all stakeholders--customers, employees, policy-makers, etc.
Customer/User Analysis
Customer analysis and much of the accompanying literature falls into the area of for-profit business analysis.
o Traditionally, companies have relied upon internally defined customer service measures, which continually indicated a high level of satisfaction.
o Methods of measuring customer satisfaction have been subjected to ever more intense scrutiny in recent years.
In the public sector, the customer/service model is incomplete because the notion of customers cannot be easily placed with all public sector applications.
A more precise definition of customer analysis in the public sector would be of user analysis.
o User analysis places an emphasis on an examination of the quality of service provided and not on the potential or actual profit generated by the action.
o User analysis can be incorporated into the processes of change management, benchmarking, functional process improvement, and business process reengineering.
Various techniques can be used to develop customer/user analysis.
o Futuring is a techinque that provides an organization the ability to determine what it wants to accomplish and what it should become in the future and how to get these points.
o The visioning approach takes a forward look at the future by establishing an effective organizational vision.
Identifying Core Competencies
Strategic goals and objectives must reflect the core competencies of the organization--what it does best, what it does well when compared to the "competition," and areas in which improvements in performance should be emphasized.
It may be appropriate to undertake a formal SWOT analysis to examine the organization's strengths, weaknesses, opportunities, and threats.
The outcome of this phase of the BPR should be a shared strategic vision of what the organization can and should strive to become in the future.
Determining Strategies and Priorities
In this phase of the BPR, the emphasis shifts from the "why" and the "what" to the "how," providing a more specific focus for the reengineering efforts by establishing priorities.
Critical success factors should be identified to provide a barometer of the overall performance by identifying what needs to be done well.
o Key performance indicators should be determined for each critical success factor.
o Whereas critical success factors are preconditions for the success of a strategy, key performance indicators "help maintain a sharp focus on what must be measured."
It is likely that some of the data deemed appropriate for inclusion as key indicators do not exist or are not readily available in the format desired.
o When data are not consistent from one year to the next (for example, because of a change in data categories), it may be necessary to recompute (or "crosswalk") the prior year's data to make them more comparable.
o Two or more units within an organization may track the same data and may provide different analyses and even conflicting information based on these data.
Benchmarking must be seen in the context of the organization that is continuously examining itself, analyzing its performance and internal processes, and continuously implementing improvement.
A crucial first step is to identify key measures to show how much or how little is being achieved by the organization (output performance) in comparison to competitors and to world's best practices.
o Key measures do not show the weaknesses or strengths in the internal business processes nor do they show what, if anything, is transferable to the organization's particular circumstances and how to make the transfer.
o The benchmarking process does not stop when comparisons have been made and an organization has been found to be doing well or found wanting.
o Comparisons in processes and process performance have to be made externally, as well as internally, and and an action plan for process improvements or redesign need to put in place.
Benchmarking is two things: setting goals by using by using objectives, external standards and learning from others--learning how much and perhaps more important, learning how.
o Setting quantitative goals, often called metrics, through benchmarking is arguably the best way to set goals.
o Understanding how the organizations under study achieve their results is usually more important and valuable than obtaining quantitative information.
Three Common Types of Benchmarking
Competitive benchmarking involves measuring current functions, process, activities, products, or services against those of competitors
Cooperative benchmarking involves contacting best-in-class organizations to determine if they are willing to share knowledge with the benchmarking team--the knowledge usually flows in one direction--from the target companies to benchmarking team.
Collaborative benchmarking involves a group of similar organizations sharing knowledge about a particular activity--all hoping to improve based upon what they learn.
Benchmarking helps BPR teams identify/develop business process innovations.
Benchmarking helps resolve a psychological predicament called "functional fixedness"--when an organization is so embedded in a problem that it cannot find a novel solution.
The application of benchmarking in the public sector often is problematical as a consequence of:
o Staff culture and the lack of individual ownership, responsibility, client-care, and staff empowerment
o Bureaucratic and non-responsive systems
o Lack of clarity about the multiple customers and stakeholders involved, even in single transactions
o Political, as opposed to market-determined, levels and extent of service, especially for subsidized and zero-priced services
o Problems of scale and complexity associated with the large, centralized organizations, and sometimes, with a large-scale technological basis.
The identification of stakeholders is a key aspect to the development of benchmarks in the public sector.
Developing an Operational Vision
An operational vision should translate the broader, more generic aspects of the strategic vision into specific applications within component processes/units of the organization.
Development of an operational vision involves:
(1) the programming of approved goals and objectives into specific projects, programs, and activities;
(2) the identification and budgeting of necessary resources to implement these programs over some specific time period, and
(3) the design and staffing of organizational units to carry out approved programs.
An operational vision focuses on setting standards for the use of specific resources and on performance tactics to achieve overall goals and objectives of the strategic and management plans.
Effective operational planning can mean the difference between "on time" and "late" in the achievement of a specific program objectives and utilimately, the difference between the effective utilization of scarce resources and waste.
Endnotes
[1] W. Edwards Deming, The New Economics for Industry, Government, Education, second edition (Potomac, MD: W. Edwards Deming Institute, 1994), chapter 4.