Business Process Reengineering: Rest in Peace

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1. Business Process Reengineering: Rest in Peace? Peter Seddon, PhD Senior Lecturer Department of Information Systems The University of Melbourne [email protected]

2. Business Process Reengineering: Rest in Peace? Chinese version translated by Bin Hu Department of Information Systems The University of Melbourne [email protected]

3. 3 Business Process Reengineering: RIP? 1. Definition and brief history of BPR 2. Four BPR success stories, pre 1995 3. BPR Success factors 4. Research findings 5. Summary and Lessons

4. 4 Business Process Reengineering: RIP? 1. Definition and brief history of BPR 2. Four BPR success stories, pre 1995 3. BPR Success factors 4. Research findings 5. Summary and Lessons

5. 5 1. BPR: Definition and history “Reengineering is the radical redesign of business processes for dramatic improvement.”

6. 6 1. BPR: Definition and history “A business process is a set of logically related tasks that use the resources of an organization to achieve a defined business outcome.”

7. 7 Popularized by Michael Hammer, Tom Davenport, and others: 1988-1995. BPR: Definition and history

8. 8 Hammer et al. argued that many things were done in organizations because “that was the way they had always been done”, not because they added value. He said: computer technology made it possible to combine simple tasks previously performed by many different people into more complex one-person jobs that provided higher levels of customer service. BPR: Definition and history

9. 9

10. 10

11. 11 BPR: Definition and history

12. 12 In addition, and consistent with Deming’s work on Total Quality Management (TQM), Hammer argued that if employees were treated as creative, responsible people (empowered), they would contribute much more value to the organization. BPR: Definition and history

13. 13 In the period 1988-1995 there was huge interest in BPR in the USA & Europe. Consultants made a lot of money helping firms reengineer. However, for many people today, “BPR” is a dirty word. BPR is now associated with massive retrenchments, turmoil, and failed plans for restructuring organizations. BPR: Definition and history

14. 14 Here are some definitions Strassmann collected about Reengineering: taking and axe and machine gun to your existing organization; reengineering will require a lobotomy what you do with the existing structure is nuke it! break legs BPR: Definition and history

15. 15 Today, I will argue that BPR has passed through both its hype and disillusionment phases, and has now emerged a useful way of describing IT-based process change. e.g., Electronic Commerce can be defined as “reengineering the supply chain”. BPR: Today’s presentation

16. 16 Business Process Reengineering: RIP? 1. Definition and brief history of BPR 2. Four BPR success stories, pre 1995 3. BPR Success factors 4. Research findings 5. Lessons

17. 17 2.Four BPR success stories, pre 1995 1: Hammer’s Ford Accounts Payable 2: Banca di America e di Italia (Deutche bank) 3: PBX sales at AT&T 4: Siemens Nixdorf Service

18. 18 Clerks in Accounts payable checked to ensure Purchase Requisitions (from manufacturing), Purchase orders, Receiving reports, Supplier invoices, Statements that for each invoice, there was both a purchase order and a receiving report. If OK, they authorized payment. From an internal control point of view, there were good reasons for this process design. There were 500 staff in Ford’s Accounts Payable dept. Presumably, the dept. was running efficiently. 1: Hammer’s Ford Accounts Payable example

19. 19 1: Hammer’s Ford Accounts Payable example In the late 1980’s, Ford bought a 25% stake in Mazda and compared staffing levels in different departments. There were only 5 staff in Mazda’s Accounts Payable. Yet Mazda was not 100 times smaller. Q: How come? A: Mazda had a different process. So Ford changed its process and reduced Accounts Payable staff by about 75%. (370 people; more than $10M p.a.) Q: What did they do?

20. 20 1: Hammer’s Ford Accounts Payable example A: They placed computer terminals in the Receiving dept. When goods arrived, Receiving checked the goods had been ordered. If accepted, funds were transferred automatically to the supplier. Hammer argues that to save the money, Ford had to shift from functional thinking, i.e., improving the efficiency of the Accounts Payable dept., to process thinking. The process was procurement: ordering, receiving, and paying. The Accounts Payable function added little of value to the process (and ultimately to the customer).

21. 21 1: Hammer’s Ford Accounts Payable example “Reengineering is the radical redesign of business processes for dramatic improvement.” (Hammer, 1996) radical: 500 staff dropped to 130 process: cross-functional computer technology: enabling

22. 22 2: Banca di America e di Italia (Deutche bank) After 1993, when you deposited cheques at BAI, the teller ran them through a scanner at the counter, and funds were automatically transferred, there and then, from accounts at the other banks. There was no back office. BAI top executives wanted to create a “paperless” bank. 80% of the bank’s revenue came from retail operations. Top executives spent 20% - 60% of their time on the project.

23. 23 2: Banca di America e di Italia (Deutche bank) In Oct. 1988, “two teams systematically diagnosed processes and redesigned them without considering the constraints of the current organization.” p.125 First, the organization team broke down all transaction types into “families”, such as payments, deposits, withdrawals, money orders, bills, consumer credit, foreign exchange, credit cards (merchant and card holder), sourcing, and end-of-day processing. They documented in detail one process for each family, then redesigned it from scratch.

24. 24 2: Banca di America e di Italia (Deutche bank) The cheque deposit “transaction”, for instance: Before: 64 activities, 9 forms, and 14 accounts. After: 25 activities, 2 forms, and 2 accounts.

25. 25 2: Banca di America e di Italia (Deutche bank) In April 1989 (7 months after start), the organization team began redesigning all processes in each transaction family based on the original prototype. A total of 300 processes were redesigned. Meanwhile, the technology team began to build systems. Branch managers and tellers helped design the screens. February 1990, software began to be rolled out, one process at a time. Tellers were given a five-day training period. Branches were restructured. The manager was placed out in front, with the customers.

26. 26 2: Banca di America e di Italia (Deutche bank) By 1993, the bank had 50 new branches, with no increase in personnel revenue doubled,1987 to 1994 (1/4 due to BPR), average personnel per branch dropped from 8 to 4 daily cashier closing time from 2 hours to 10 mins Summary: Used computer technology to achieve significant improvements in process performance. Aside: Today, many Australian banks are closing branches, and the potential of internet banking means that more change may be coming their way.

27. 27 3: PBX sales at AT&T US$4B annual sales of PBX equipment By 1989, each year the business had met higher performance targets for individual functions, but overall profit did not increase. The president decided to redesign the business’s core processes. He appointed a top-performing sales branch manager as team leader, plus a full-time team from a wide range of functions: sales, services, product management, Bell Labs, manufacturing, materials management, information systems, and training. He told them that if they failed, the business would be sold or liquidated.

28. 28 3: PBX sales at AT&T: June 1989-Feb 1990 Team surveyed steps from initial customer contact through to collection of funds. Interviewed employees and customers and constructed 24 cases which they then analyzed in great detail. They identified every person involved, their activities, and how their time was spent. Details: an account executive negotiated the sale, a system consultant determined the specifications for the system, a technician installed the hardware

29. 29 3: PBX sales at AT&T In all, 16 handoffs were required to install a new system. No one had responsibility for the entire transaction. It could take up to a year to get a large system installed, by which time customer needs might have changed ? dissatisfaction. Front-line employees lacked information on profit contribution of their actions. Marketing often concentrated on low-profit customers. Sales concentrated on maximizing revenue, not profit. Too much use of headquarters staff for various tasks, but little value added. Sales staff worked for AT&T, not the PBX firm, and their main sales were not PBXs. So sales staff knew little about PBXs, which did not impress customers.

30. 30 3: PBX sales at AT&T: Redesign Appointed Pat Russo to build and run a new PBX sales force. Her goal was to maximize profit and minimize time between sale and installation. Redesign team proposed a new position, called Project Manager, defined tasks that cut handoffs down from 12 to 3, and estimated that for a typical small system: the cycle time could be cut from 3 months to 3 weeks, costs would drop by one third errors would approach zero.

31. 31 3: PBX sales at AT&T: Redesign “The team then turned its attention to the organizational ramifications of the redesign. The radically different job responsibilities posed an immense human-resource problem.” p.127 Using PCs and off-the-shelf software existing systems were simplified, and new systems designed to reduce cycle times and provide accurate profit estimation and job tracking. Rollout April 1991-April 1992

32. 32 3: PBX sales at AT&T Results Customer willingness to repurchase: 53% ?82% adjustments dropped from 4% to 0.6% of revenues bills paid in 30 days from installation: 31%? 71% 88% of customers rate project management of their sale and installation as “excellent” Summary Redesigning the process caused these improvements. The actual PBXs did not change. By changing process, it was possible to produce big increases in value to the customer.

33. 33 4: Siemens Nixdorf Service DM 3.4B (=US $2.1B) revenue Siemens Nixdorf Service (SNS) installs, services, maintains, and networks software and hardware sold by Siemens Nixdorf. By late 1990, the 12,900-person company was still making profits but forecasting losses by 1995. General manager, Gerhard Radtke assembled a ten-person team to restructure headquarters to reduce personnel by 50%.

34. 34 4: Siemens Nixdorf Service September-December 1991: The team confirmed the profit forecasts but argued that reducing HQ staff would not be sufficient. Instead, they suggested the entire 11,400 person field-servicing organization needed to be streamlined. SNS had 30 support centres in Germany, fully staffed with specialists continuously available for telephone enquiries. Some specialists only received a few phone calls per day. Most times when technicians visited a site, they identified the problem, then returned to base for parts (two trips per call).

35. 35 4: Siemens Nixdorf Service Redesign proposals for SNS Reduce the number of support centres 30 ? 5. Found that in 80% of cases, and expert could diagnose the problem over the phone. Once diagnosed, could airfreight parts to customer or place in technician’s car ? most repairs could be completed on first service call. Team also proposed reducing management hierarchy by two levels, creating a new team structure for field technicians, reducing HQ personnel from 1,600 to 800.

36. 36 4: Siemens Nixdorf Service August-October 1992: trialled the proposal in Frankfurt, good results: 35% reduction in personnel technicians productivity doubled (2?4/day) November 1992 - December 1993: Rollout Results: % of problems solved remotely 10% ? 25% profit and cost improvements in excess of 10% employee headcount reduced by 20% (through voluntary retirement and severance packages) plan to service other non-SN equipment in future

37. 37 Summary: Four BPR success stories, pre 1995 Reengineering (BPR) meant radical change in business processes (not 5-10% improvements). Usually it meant cross-functional change. It could be applied to all sorts of organizations (e.g., manufacturing and service) in all sorts of processes (e.g., sales and support). Usually it referred to administrative processes, not manufacturing. (Manufacturing is the domain of TQM, which was about incremental, not radical change.)

38. 38 Summary: Four BPR success stories, pre 1995 In some cases, BPR led to dramatic improvements in performance. In many other cases, BPR projects failed. BPR was often associated with downsizing. Firms in financial trouble often attempted to use BPR, in a last-ditch attempt to cut costs. BPR appealed to senior management ego

39. 39 Business Process Reengineering: RIP? 1. Definition and brief history of BPR 2. Four BPR success stories, pre 1995 3. BPR Success factors 4. Beyond reengineering? 5. Research findings 6. Lessons

40. 40 3. BPR Success factors Ch.2: Ten Top Ways to Fail at Reengineering Ch.3: The Primary Ingredient: Leadership Ch.4: The 2nd Ingredient: The Reengineering Team Ch.5: Do you need help? Consultants Ch.6: Are you ready for reengineering? (Checklist) Ch.8: The Hardest Part of Reengineering

41. 41 Ch. 2: Ten Top Ways to Fail at Reengineering 1. Don’t reengineer but say that you are. 2. Don’t focus on processes. 3. Spend a lot of time analyzing the current situation. 4. Proceed without strong executive leadership. 5. Be timid in redesign.

42. 42 Ch. 2: Ten Top Ways to Fail at Reengineering 6. Go directly from conceptual design to implementation. 7. Reengineer slowly. 8. Place some aspects of the business off-limits. 9. Adopt a conventional implementation style. 10. Ignore the concerns of your people.

43. 43 Ch.3: The Primary Ingredient: Leadership “It is an unalterable axiom of reengineering that it only succeeds when driven from the topmost levels of an organization.” (p.34) “In our experience, the quality of an organization’s leadership is an absolute predictor of its reengineering success. Companies with strong leadership will succeed because they will do what it takes to ensure…” (p.36)

44. 44 Ch.3: The Primary Ingredient: Leadership “Does it have to be the CEO? No. Put most simply, a leader is someone in a position to compel the compliance of all parties involved in reengineering.” (p.36) “If there is a single word that captures an effective leader’s style it is relentlessness.” (p.41) “The leader is the motivator, the cheerleader, the spiritual advisor...” (p.46)

45. 45 Ch.4: The Second Ingredient: The Reengineering Team “The team must transcend the constituencies it represents…. To this end, team members should not expect to return to their home departments when the reengineering assignment is over.” (p.62)

46. 46 Ch. 5: Do you need help? Consultants “Business people don’t all share the same feelings about consultants: Some hate them, while others hate them a lot.” (p.68) “those who attempt a Himalayan climb for the first time usually hire an experienced Sherpa guide.” (p.73)

47. 47 Ch. 5: Do you need help? Consultants “Everyone inside a company has a political stake in reengineering, some turf or job to protect, some position to covet. (p.76) “Since power is a zero-sum game and change virtually always disturbs power relationships, everyone on the inside can probably be seen as having a vested interest…” (p.76)

48. 48 Ch. 6: Self-assessment Diagnostic (20 questions) Examples: “1. The leader of reengineering is a senior executive who is strongly committed to reengineering and who possesses the title and authority necessary to institute fundamental change.” (p.86) “7. The organization as a whole recognizes the need for reengineering and fundamental change.” (p.87)

49. 49 Ch. 6: Self-assessment Diagnostic (20 questions) “15. The organization places a high value on serving customers and has a solid understanding of customer needs.” (p.87) “20. Measurement systems and performance goals have been established to chart the progress of reengineering.” (p.88) (Will show test of validity of the H&S diagnostic later in this presentation.)

50. 50 Ch. 8: The Hardest Part of Reengineering Reengineering is “agonizingly, heartbreakingly tough” (CEO Aetna Life, Hammer and Stanton, p.117) “In our experience with companies struggling to implement reengineering, the number one source of their difficulties has been in this area of coping with the reactions of the people in the organization to the enormity of the change.” (p.119)

51. 51 Business Process Reengineering: RIP? 1. Definition and brief history of BPR 2. Four BPR success stories, pre 1995 3. BPR Success factors 4. Research findings 5. Lessons

52. 52 4. Research findings 22 papers in the References section of the paper below relate to academic studies of various aspects of reengineering (1994-7)

53. 53 Research findings Today, review results from three studies: Stoddard and Jarvenpaa, 1995 Grover, Jeong, Kettinger, and Teng, 1995 Murphy, Staples, and Seddon, 1998 & 1999

54. 54 Stoddard and Jarvenpaa, 1995 Case studies of three firms in 1993: Revenue Employees DefenseCo US$1.3B FoodCo US$1.5B 3,500 FinanceCo US$ 0.6B 2,000 8 to 25 interviews at each firm

55. 55 Stoddard and Jarvenpaa, 1995 Scope Depth of change DefenseCo Functional Efficiency FoodCo Cross-funct. Effectiveness FinanceCo Org-wide Transformation Change was initiated in DefenseCo and FinanceCo using revolutionary change tactics: “If we do not do this, we will not survive.” At FoodCo the project was presented as an opportunity to generate more wealth.

56. 56 Stoddard and Jarvenpaa, 1995 Change practices: In both FoodCo and FinanceCo, design involved revolutionary change, but the pilot and implementation phases were evolutionary. For DefenseCo, a mixture of evolutionary and revolutionary changes was used in both design and implementation stages.

57. 57 Stoddard and Jarvenpaa, 1995

58. 58 Stoddard and Jarvenpaa, 1995 Conclusions (about BPR as practiced): “Use of revolutionary tactics appeared to require a true crisis in the organization” (p.103) “BPR does not always result in radical change in a short period of time” (p.104) “although reengineering can deliver radical designs, it does not necessarily promise a revolutionary approach to change.” (p.105)

59. 59 Developed a questionnaire about six problem areas for BPR, containing a total of 64 questions. 853 Questionnaires sent to members of a US management organization. 239/853 responses (= 30%), from a wide range of industries, all with over 1,000 employees. Grover et al. 1995

60. 60 105 organizations had completed at least one BPR project. Example projects: customer service (13), product development (13), order management (10). Factor analysis indicated there should be nine categories of problem, not six. Severity scores (average % of respondents who indicated the issue was a major or extreme problem) for each of the nine problem categories were then calculated. Grover et al. 1995

61. 61 Problem Area Av Severity% Correl Change Management - Organizat. 22 -0.35** Technological competence 18 -0.19 Project Planning - strategic 17 -0.28** Project management -Time frame 16 -0.27** Management support 16 -0.36** Change Management - Individual 15 -0.51** Process delineation 14 -0.30** Project management- general 12 -0.42** Project Planning - tactical 10 -0.33** (**= significantly correlated at p<0.01) Serious Problem Areas for BPR and Correlations with Perceived Success

62. 62 Conclusions (1): The most difficult BPR problems to manage in the US in 1994 appear to have been: Organizational Change Management (resistance, politics, communication) Technological Competence (lack of IT expertise, insuffic understanding of data) Strategic Project Planning (lack of alignment of corporate and IT planning, strategic vision) Grover et al. 1995

63. 63 Conclusions (2): The BPR problems most highly correlated with success in the US in 1994 appear to have been: Individual Change Management (inadequate training, insufficient time to develop new skills, indiv. incentives) General Project Management (poor communication in team, lack of methodology, performance measurement) Management Support (lack of senior management leadership, top management support) Grover et al. 1995

64. 64 Australian BPR Study The University of Melbourne

65. 65 Similar questionnaire to Grover’s. Sent to CEOs of the top 1000 Australian private and public organizations. Two parts: senior manager & project leader. Senior managers were asked to complete their part of the questionnaire and pass the other part to a BPR project leader. 239/1000 responses (24%): 137 from senior managers, and 102 from project leaders who had completed “reengineering” projects. Murphy et al. 1998

66. 66 Results with the Australian data Only project leaders answered questions about Grover et al.’s 64 items. There were many differences in rankings of the 64 problem areas, but rankings correlated 0.6 with Grover et al.’s rankings. There was no significant correlation between rankings of the nine categories in the two studies (Australia vs US). Murphy et al. 1998

67. 67 Problem Area Aus% US% AusCorr. Change Management - Org. 27 22 -0.37** Technological competence 23 18 -0.22 Project Planning - strategic 18 17 -0.31** Project mgt -Time frame 25 16 -0.42** Management support 27 16 -0.32** Change Management - Indiv 31 15 -0.26* Process delineation 18 14 -0.43** Project mgt- general 21 12 -0.39** Project Planning - tactical 18 10 -0.38** (**= significantly correlated at p<0.01) Serious Problem Areas for BPR and Correlations with Perceived Success

68. 68 Conclusions about Grover et al.’s factors All nine categories of problems with BPR are either hard to manage or significantly correlated with success! Organizational change management appears as a near-top issue on all criteria. The Australian results are from project managers, who will have been closely involved in the project, and so may place a higher value on solving practical problems. Murphy et al. 1998

69. 69 Test of Hammer & Stanton’s BPR Readiness Diagnostic Did your org./project pass threshhold? Snr Mgr Proj Leader Reengineering Leadership 40% 42% Organizational Readiness 76% 54% Style of Implementation 71% 48% Overall Score 55% 26% Perceived Success of subsequent reengineering project(s) 80% 81% (106/133) (77/95) Murphy et al. 1998

70. 70 Test of Hammer & Stanton’s BPR Readiness Diagnostic Correlation with Perceived Success Snr Mgr Proj Leader Reengineering Leadership 0.28** 0.08 Organizational Readiness 0.28** 0.24** Style of Implementation 0.34** 0.11 Overall Score 0.33** 0.17* ** = significant at p<0.01 * = significant at p<0.05 Murphy et al. 1998

71. 71 Conclusions about Hammer and Stanton’s diagnostic: Is your organization ready for BPR? the threshold levels appear to be higher than necessary for successful projects H&S’s factors are correlated with 133 senior managers’ perceptions of subsequent success for 95 project leaders, the Organizational readiness factor was also correlated with subsequent success. Murphy et al. 1998

72. 72 Business Process Reengineering: RIP? 1. Definition and brief history of BPR 2. Four BPR success stories, pre 1995 3. BPR Success factors 4. Research findings 5. Summary and Lessons

73. 73 5. Summary and Lessons

74. 74 5. Summary and Lessons “Now, with a critical mass of business process change (BPC) projects concluded, it is appropriate to take a retrospective look at the implications, prescriptions, or lessons we can extract from these collective experiences.

75. 75 5. Summary and Lessons “Assimilated in these experiences is the realization that reengineering’s operative word is not “radical” but “process”, with the directive to create end-to-end value for the customer.” “the ‘obliterate and rebuild’ mentality of earlier years is giving way to more sober, deliberate, and often moderate approaches to BPC and process management.” (BPC=business process change)

76. 76 5. Summary and Lessons BPR is now perceived as just another example of major organizational change projects involving IT. The critical success factors are those identified in numerous prior major IT-change projects over the last 20-30 years. They are no different for BPR.

77. 77 5. Summary and Lessons Key success factors seem to be: Change management (both organizational and individual learning) Top management support Project management Technology competence is necessary, but is not sufficient for success. Because of cultural differences, the factors may be different in China.

78. 78 5. Summary and Lessons

79. 79 Questions? Peter Seddon and Bin Hu Department of Information Systems The University of Melbourne [email protected] Printed material: Hammer and Stanton’s diagnostic Grover’s 1995 paper

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