January 29th, 2012 Business Process Reengineering (BPR)
Business process reengineering (BPR) is a management approach aiming at improvements by means of elevating efficiency and effectiveness of the processes that exist within and across organizations. The key to BPR is for organizations to look at their business processes from a "clean slate" perspective and determine how they can best construct these processes to improve how they conduct business.
Business process reengineering is also known as BPR, Business Process Redesign, Business Transformation, or Business Process Change Management.
History of Business Process Reengineering
In 1990, Michael Hammer, a former professor of computer science at the Massachusetts Institute of Technology (MIT), published an article in the Harvard Business Review, in which he claimed that the major challenge for managers is to obliterate non-value adding work, rather than using technology for automating it (Hammer 1990). This statement implicitly accused managers of having focused on the wrong issues, namely that technology in general, and more specifically information technology, has been used primarily for automating existing work rather than using it as an enabler for making non-value adding work obsolete.
Hammer's claim was simple: Most of the work being done does not add any value for customers, and this work should be removed, not accelerated through automation. Instead, companies should reconsider their processes in order to maximize customer value, while minimizing the consumption of resources required for delivering their product or service. A similar idea was advocated by Thomas H. Davenport and J. Short (1990), at that time a member of the Ernst & Young research center, in a paper published in the Sloan Management Review the same year as Hammer published his paper.
This idea, to unbiasedly review a companys business processes, was rapidly adopted by a huge number of firms, which were striving for renewed competitiveness, which they had lost due to the market entrance of foreign competitors, their inability to satisfy customer needs, and their insufficient cost structure. Even well established management thinkers, such as Peter Drucker and Tom Peters, were accepting and advocating BPR as a new tool for (re-)achieving success in a dynamic world. During the following years, a fast growing number of publications, books as well as journal articles, was dedicated to BPR, and many consulting firms embarked on this trend and developed BPR methods. However, the critics were fast to claim that BPR was a way to dehumanize the work place, increase managerial control, and to justify downsizing, i.e. major reductions of the work force (Greenbaum 1995, Industry Week 1994), and a rebirth of Taylorism under a different label.
Despite this critique, reengineering was adopted at an accelerating pace and by 1993, as many as 65% of the Fortune 500 companies claimed to either have initiated reengineering efforts, or to have plans to do so. This trend was fueled by the fast adoption of BPR by the consulting industry, but also by the study Made in America, conducted by MIT, that showed how companies in many US industries had lagged behind their foreign counterparts in terms of competitiveness, time-to-market and productivity.
Definition of BPR
Different definitions can be found. This section contains the definition provided in notable publications in the field.
Hammer and Champy (1993) define BPR as
"… 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."
Thomas H. Davenport (1993), another well-known BPR theorist, uses the term process innovation, which he says
"… encompasses the envisioning of new work strategies, the actual process design activity, and the implementation of the change in all its complex technological, human, and organizational dimensions."
Additionally, Davenport (ibid.) points out the major difference between BPR and other approaches to organization development (OD), especially the continuous improvement or TQM movement, when he states:
"Today firms must seek not fractional, but multiplicative levels of improvement 10x rather than 10%."
Finally, Johansson et al. (1993) provide a description of BPR relative to other process-oriented views, such as Total Quality Management (TQM) and Just-in-time (JIT), and state:
"Business Process Reengineering, although a close relative, seeks radical rather than merely continuous improvement. It escalates the efforts of JIT and TQM to make process orientation a strategic tool and a core competence of the organization. BPR concentrates on core business processes, and uses the specific techniques within the JIT and TQM toolboxes as enablers, while broadening the process vision."
In order to achieve the major improvements BPR is seeking for, the change of structural organizational variables, and other ways of managing and performing work is often considered as being insufficient. For being able to reap the achievable benefits fully, the use of information technology (IT) is conceived as a major contributing factor. While IT traditionally has been used for supporting the existing business functions, i.e. it was used for increasing organizational efficiency, it now plays a role as enabler of new organizational forms, and patterns of collaboration within and between organizations.
BPR derives its existence from different disciplines, and four major areas can be identified as being subjected to change in BPR – organization, technology, strategy, and people – where a process view is used as common framework for considering these dimensions. The approach can be graphically depicted by a modification of "Leavitt's diamond" (Leavitt 1965).
Business strategy is the primary driver of BPR initiatives and the other dimensions are governed by strategy's encompassing role. The organization dimension reflects the structural elements of the company, such as hierarchical levels, the composition of organizational units, and the distribution of work between them. Technology is concerned with the use of computer systems and other forms of communication technology in the business. In BPR, information technology is generally considered as playing a role as enabler of new forms of organizing and collaborating, rather than supporting existing business functions. The people / human resources dimension deals with aspects such as education, training, motivation and reward systems. The concept of business processes – interrelated activities aiming at creating a value added output to a customer – is the basic underlying idea of BPR. These processes are characterized by a number of attributes: Process ownership, customer focus, value-adding, and cross-functionality.
The Role of Information Technology
Information technology (IT) has historically played an important role in the reengineering concept. It is considered by some as a major enabler for new forms of working and collaborating within an organization and across organizational borders.
The early BPR literature, e.g. Hammer and Champy (1993), identified several so called disruptive technologies that were supposed to challenge traditional wisdom about how work should be performed.
1. Shared databases, making information available at many places
2. Expert systems, allowing generalists to perform specialist tasks
3. Telecommunication networks, allowing organizations to be centralized and decentralized at the same time
4. Decision-support tools, allowing decision-making to be a part of everybody's job
5. Wireless data communication and portable computers, allowing field personnel to work office independent
6. Interactive videodisk, to get in immediate contact with potential buyers
7. Automatic identification and tracking, allowing things to tell where they are, instead of requiring to be found
8. High performance computing, allowing on-the-fly planning and revisioning
In the mid 1990s, especially workflow management systems were considered as a significant contributor to improved process efficiency. Also ERP (Enterprise Resource Planning) vendors, such as SAP, positioned their solutions as vehicles for business process redesign and improvement.
Methodology of Business Process Reengineering
Although the labels and steps differ slightly, the early methodologies that were rooted in IT-centric BPR solutions share many of the same basic principles and elements. The following outline is one such model, based on the PRLC (Process Reengineering Life Cycle) approach developed by Guha et.al. (1993).
Benefiting from lessons learned from the early adopters, some BPR practitioners advocated a change in emphasis to a customer-centric, as opposed to an IT-centric, methodology. One such methodology, that also incorporated a Risk and Impact Assessment to account for the impact that BPR can have on jobs and operations, was described by Lon Roberts (1994). Roberts also stressed the use of change management tools to proactively address resistance to changeï¿½a factor linked to the demise of many reengineering initiatives that looked good on the drawing board.
BPR – A Rebirth of Scientific Management?
By its critics, BPR is often accused to be a re-animation of Taylor's principles of scientific management, aiming at increasing productivity to a maximum, but disregarding aspects such as work environment and employee satisfaction. It can be agreed that Taylor's theories, in conjunction with the work of the early administrative scientists have had a considerable impact on the management discipline for more than 50 years. However, it is not self-evident that BPR is a close relative to Taylorism and this proposed relation deserves a closer investigation.
In the late 19th century Frederick Winslow Taylor, a mechanical engineer, started to develop the idea of management as a scientific discipline. He applied the premise that work and its organizational environment could be considered and designed upon scientific principles, i.e. that work processes could be studied in detail using a positivist analytic approach. Upon the basis of this analysis, an optimal organizational structure and way of performing all work tasks could be identified and implemented. However, he was not the one to originally invent the concept. In 1886, a paper entitled "The Engineer as Economist", written by Henry R. Towne for the American Society of Mechanical Engineers, had laid the bedrock for the development of scientific management.
The basic idea of scientific management was that work could be studied from an objective scientific perspective and that the analysis of the gathered information could be used for increasing productivity, especially of blue-collar work, significantly. Taylor (1911) summarized his observations in the following four principles:
- Observation and analysis through time study to set the optimal production rate. In other words, develop a science for each mans task a One Best Way.
- Scientifically select the best man for the job and train him in the procedures he is expected to follow.
- Cooperate with the man to ensure that the work is done as described. This means establishing a differential rate system of piece work and paying the man on an incentive basis, not according to the position.
- Divide the work between managers and workers so that managers are given the responsibility for planning and preparation of work, rather than the individual worker.
Scientific management's main characteristic is the strict separation of planning and doing, which was implemented by the use of a functional foremanship system. This means that a worker, depending on the task that he or she is performing, can report to different foreman, each of them being responsible for a small, specialized area.
Taylor's ideas had a major impact on manufacturing, but also administration. One of the most well-known examples is Ford Motor Co., which adopted the principles of scientific management at an early stage, and built its assembly line for the T-model based on Taylor's model of work and authority distribution, thereby giving name to Fordism.
Later on, Taylor's ideas were extended by the time and motion studies performed by Frank Gilbreth and his wife Lillian. Henry Gantt, a co-worker of Taylor, developed Taylor's idea further, but placed more emphasis on the worker. He developed a reward system that no longer took into account only the output of the work, but was based on a fixed daily wage, and a bonus for completing the task.
Taylor's work can be, and has been, criticized many times for degrading individuals to become machinelike. One of the most famous critiques of the situation that an application of scientific management could result in, is shown in Charles Chaplin's movie "Modern Times (film)". Despite that fact, Taylor was inspired by the vision of creating a workplace that is beneficial to all members of the organization, both management and workers.
When looking at Taylor's ideas retrospectively, we can conclude, that they very well fitted the organizations of the early 20th century. The kind of organization he proposed requires certain pre-conditions, which were satisfied in the technological and socio-economic environment of his time and the heritage from economic individualism and a Protestant view of work. However, despite the good intention of designing organizations where managers and workers could jointly contribute to the common achievements, Taylor missed the fact that he had been building his principles on wrong assumptions. There are some major critical points that can be brought forward against Taylor's concept.
The strict belief in man being totally rational, and the history of Protestant ethic, which considered work as being a manifestation of religious grace, made him disregard the crucial issue of human behaviour and the fact that money is insufficient as the single source of motivation (Tawney 1954).
The lack of considering the organizational environment as a conceivable factor, and the overemphasis on organizational efficiency. As Thompson (1969) notes:
"Scientific management, focusing primarily on manufacturing or similar production activities, clearly employs economic efficiency as its ultimate criterion and achieves conceptual closure of the organization by assuming that goals are known, tasks are repetitive, output of the production process somehow disappears, and resources in uniform qualities are available."
If accepting Thompson's critique as valid and relevant, it can be concluded that the strict hierarchical organization seems to be unfit to take on the challenges that are imposed by fierce competition and dynamic market structures. Due to the focus on improvement through repetition and resource uniformity, the applicability on organizations and processes without these characteristics, such as pharmaceutical R&D, can be questioned.
Peter Drucker noted a third problem related to scientific management, namely that there was no real concern about technology, i.e. that Taylor considered his theory as being general, and that it could be applied to any organization, independently of the technology used. Drucker (1972) stated:
"Scientific management was not concerned with technology. It took tools and technology as givens."
This point brings forward a clear argument against the application of Taylor's principles and methodologies for improving today's organizations. Considering that the rapid development in the IT field actually constitutes a driving force in itself, it appears to be unfit to employ organizational concepts that neglect the changing and enabling role of technology. On the other hand we can argue that the application of scientific management in the early 20st century, as we look at it retrospectively, must be considered as the contemporary use of a concept that would look and be applied in a different way today. Taylor did not neglect technology, he considered it as an important contributor to organizational performance, but given the pace of development, he could not consider it as a major driver of change.
Looking at the suggested relationship between BPR and Taylor's principles we can conclude that primarily Thompson's and Drucker's criticism build a strong case against BPR being a successor of Taylorism. An organizational concept that does not take into account changing business environments and rapid technological advancements is not fit for serving as an improvement method today. Also the BPR literature offers a harsh critique of the continuous application of tayloristic principles in the modern business world, thus rejecting the separation of planning and doing and the strict functional division of labor. BPR proponents claim that taking BPR for Taylorism is a major misunderstanding of the concept, and responsible for a considerable number of reengineering project failures. On the other hand, there is also a similarity which stems from the methodological approach: Both scientific management and BPR have a focus on productivity and efficient use of resources that can be achieved through an optimum process design and its subsequent deployment. The following quote, referring to scientific management can equally be used to describe the intention of reengineering:
"To conduct the undertaking toward its objectives by seeking to derive optimum advantage from all available resources." (Loyd 1994)
At the same time it cannot be denied, that the implementation of process-based organizations in practice often is accompanied by massive lay-offs and an emphasis on managerial control. A study by CSC Index from 1994 revealed that 73% of the companies applying BPR reduced their workforce with an average of 21%. Thomas Davenport, an early contributor to the BPR-field, provided a harsh critique against labeling substantial workforce reductions reengineering and in a paper from 1995 he stated that:
"Reengineering didn't start out as a code word for mindless bloodshed … The [other] thing to remember about the start of reengineering is that the phrase massive layoffs was never part of the early vocabulary." (Davenport, 1995)
Successes of Business Process Reengineering
BPR, if implemented properly, can give huge returns. BPR has helped giants like Procter and Gamble Corporation and General Motors Corporation succeed after financial drawbacks due to competition. It helped American Airlines somewhat get back on track from the bad debt that is currently haunting their business practice. BPR is about the proper method of implementation..
General Motors Corporation implemented a 3-year plan to consolidate their multiple desktop systems into one. It is known internally as "Consistent Office Environment" (Booker, 1994). This reengineering process involved replacing the numerous brands of desktop systems, network operating systems and application development tools into a more manageable number of vendors and technology platforms. According to Donald G. Hedeen, director of desktops and deployment at GM and manager of the upgrade program, he says that the process "lays the foundation for the implementation of a common business communication strategy across General Motors." (Booker, 1994). Lotus Development Corporation and Hewlett-Packard Development Company, formerly Compaq Computer Corporation, received the single largest non-government sales ever from General Motors Corporation. GM also planned to use Novell NetWare as a security client, Microsoft Office and Hewlett-Packard printers. According to Donald G. Hedeen, this saved GM 10% to 25% on support costs, 3% to 5% on hardware, 40% to 60% on software licensing fees, and increased efficiency by overcoming incompatibility issues by using just one platform across the entire company.
Michael Dell is the founder and CEO of DELL Incorporated, which has been in business since 1983 and has been the world's fastest growing major PC Company. Michael Dell's idea of a successful business is to keep the smallest inventory possible by having a direct link with the manufacturer. When a customer places an order, the custom parts requested by the customer are automatically sent to the manufacturer for shipment. This reduces the cost for inventory tracking and massive warehouse maintenance. Dell's website is noted for bringing in nearly "$10 million each day in sales."(Smith, 1999). Michael Dell mentions: "If you have a good strategy with sound economics, the real challenge is to get people excited about what you're doing. A lot of businesses get off track because they don't communicate an excitement about being part of a winning team that can achieve big goals. If a company can't motivate its people and it doesn't have a clear compass, it will drift." (Smith, 1999) Dell's stocks have been ranked as the top stock for the decade of the 1990s, when it had a return of 57,282% (Knestout and Ramage, 1999). Michael Dell is now concentrating more on customer service than selling computers since the PC market price has pretty much equalized. Michael Dell notes: "The new frontier in our industry is service, which is a much greater differentiator when price has been equalized. In our industry, there's been a pretty huge gap between what customers want in service and what they can get, so they've come to expect mediocre service. We may be the best in this area, but we can still improve quite a bitï¿½in the quality of the product, the availability of parts, service and delivery time." (Smith, 1999) Michael Dell understands the concept of BPR and really recognizes where and when to reengineer his business.
Ford reengineered their business and manufacturing process from just manufacturing cars to manufacturing quality cars, where the number one goal is quality. This helped Ford save millions on recalls and warranty repairs. Ford has accomplished this goal by incorporating barcodes on all their parts and scanners to scan for any missing parts in a completed car coming off of the assembly line. This helped them guarantee a safe and quality car. They have also implemented Voice-over-IP (VoIP) to reduce the cost of having meetings between the branches.
A multi-billion dollar corporation like Procter and Gamble Corporation, which carries 300 brands and growing really has a strong grasp in re-engineering. Procter and Gamble Corporation's chief technology officer, G. Gil Cloyd, explains how a company which carries multiple brands has to contend with the "classic innovator's dilemma most innovations fail, but companies that don't innovate die. His solution, innovating innovation…" (Teresko, 2004). Cloyd has helped a company like Procter and Gamble grow to $5.1 billion by the fiscal year of 2004. According to Cloyd's scorecard, he was able to raise the volume by 17%, the organic volume by 10%, sales are at $51.4 billion up by 19%, with organic sales up 8%, earnings are at $6.5 billion up 25% and share earnings up 25%. Procter and Gamble also has a free cash flow of $7.3 billion or 113% of earnings, dividends up 13% annually with a total shareholder return of 24%. Cloyd states: "The challenge we face is the competitive need for a very rapid pace of innovation. In the consumer products world, we estimate that the required pace of innovation has double in the last three years. Digital technology is very important in helping us to learn faster." (Teresko, 2004) G. Gil Cloyd also predicts, in the near future, "as much as 90% of P&G's R&D will be done in a virtual world with the remainder being physical validation of results and options." (Teresko, 2004).
Critiques against Business Process Reengineering
The most frequent and harsh critique against BPR concerns the strict focus on efficiency and technology and the disregard of people in the organization that is subjected to a reengineering initiative. Very often, the label BPR was used for major workforce reductions. Thomas Davenport, an early BPR proponent, stated that:
"When I wrote about "business process redesign" in 1990, I explicitly said that using it for cost reduction alone was not a sensible goal. And consultants Michael Hammer and James Champy, the two names most closely associated with reengineering, have insisted all along that layoffs shouldn't be the point. But the fact is, once out of the bottle, the reengineering genie quickly turned ugly." (Davenport, 1995)
Michael Hammer similarly admitted that:
"I wasn't smart enough about that. I was reflecting my engineering background and was insufficient appreciative of the human dimension. I've learned that's critical." (White, 1996)
Criticisms against the BPR
- lack of management support for the initiative and thus poor acceptance in the organization.
- exaggerated expectations regarding the potential benefits from a BPR initiative and consequently failure to achieve the expected results.
- underestimation of the resistance to change within the organization.
- implementation of generic so-called best-practice processes that do not fit specific company needs.
- overtrust in technology solutions.
- performing BPR as a one-off project with limited strategy alignment and long-term perspective.
- poor project management.
BPR Development after 1995
With the publication of critiques in 1995 and 1996 by some of the early BPR proponents, coupled with abuses and misuses of the concept by others, the reengineering fervor in the U.S. began to wane. Since then, considering business processes as a starting point for business analysis and redesign has become a widely accepted approach and is a standard part of the change methodology portfolio, but is typically performed in a less radical way as originally proposed.
More recently, the concept of Business Process Management (BPM) has gained major attention in the corporate world and can be considered as a successor to the BPR wave of the 1990s, as it is evenly driven by a striving for process efficiency supported by information technology. Equivalently to the critique brought forward against BPR, BPM is now accused of focusing on technology and disregarding the people aspects of change.