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Re-engineering The Corporation A Manifesto for Business Revolution Book by Michael Hammer and James Champy Talk delivered at a lunch group meeting Joe.

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Presentation on theme: "Re-engineering The Corporation A Manifesto for Business Revolution Book by Michael Hammer and James Champy Talk delivered at a lunch group meeting Joe."— Presentation transcript:

1 Re-engineering The Corporation A Manifesto for Business Revolution Book by Michael Hammer and James Champy Talk delivered at a lunch group meeting Joe Cleetus Concurrent Engineering Research Center West Virginia University, Morgantown, WV.

2 Copyright © Concurrent Engineering Research Center 2 Re-engineering The Corporation Book by Michael Hammer and James Champy About the radical re-design of a company's processes, organization, and culture. Quantum leap, not 10% gains -- the goal. How corporations speed up, become flexible, and attain high levels of customer satisfaction.. Frederick Taylor's notions of division of labor, elaborate controls, and managerial hierarchy are now obsolete.. Concentrate now on rethinking sets of end-to-end activities that create value for the customer. Roadmap to getting a re-engineered corporation by the study of exemplary companies who replaced their old processes. Explores reasons to reengineer, describes the techniques. Guidelines for conducting and following through on BE. Business re-engineering is a set of procedures for effecting radical change. It means starting over, not tinkering. Business re-engineering is a set of procedures for effecting radical change. It means starting over, not tinkering.

3 Copyright © Concurrent Engineering Research Center 3 Intro to Re-engineering Adam Smith and Henry Ford taught the value of specialization and decomposition of work into its elements: tasks. Linear flows and lack of variety ("any color so long as it is black", Ford said about the Model T which sold for $500) were the reason for its success. Today variety is the consumer's right, work processes are far from linear, and organizations have become very large. There is gridlock. Time to re-unify the tasks and make them into coherent processes, and mange the processes instead of the tasks. Re-engineering is not about fixing anything. It is about abolishing and starting afresh. Use today's technology and today's market needs to organize the work. Forget the old titles and responsibilities and departments. The governing philosophies and unconscious (or conscious) rules may all have been rendered obsolete. Think Discontinuously is the message.

4 Copyright © Concurrent Engineering Research Center 4 Intro to Re-engineering Have to look across and beyond functional departments, to processes: therefore needs to have a very high level mandate. Cannot be done as a bottom-up self-improvement or continuous improvement -- though there is a place for that. Why did these companies adopt radical change instead of incremental change?. These companies used a common set of tools and tactics. They asked "Why do we do what we do?", not "Can we do what we are doing better, faster, or cheaper. Many tasks were being done to satisfy internal rules, not to provide value to the customer. To survive, every corporation has to re-invent its processes periodically. -- to adjust to the inevitable change in its environment (which could have been caused by its own actions). To survive, every corporation has to re-invent its processes periodically. -- to adjust to the inevitable change in its environment (which could have been caused by its own actions).

5 Copyright © Concurrent Engineering Research Center 5 The Crisis Parts of a company optimize at the expense of the whole. There is no one or department in charge in charge of getting the work done which needs spans departments, e.g., no VP of Order Fulfillment or Returns or... But returns may involve 13 departments (receiving, warehouse, inventory management, sales, accounting, commissions, etc.) Ex. of how long it take to do field testing of a drug. Lots of wait time, recycle time for error. Took 2 years to get a 1 week follow up study on 30 patients. Growing bureaucracy and middle management -- an overhead that does not scale, it grows disproportionately. Customers have choice and want service, variety, flexibility, and get information (like Consumer Reports). Competitors are global; they do not play by your rules or suffer from your economic situation or cost structures. Start-ups everywhere change the rules, they do not imitate what is around. No management principle will fix the problem of decline till the key processes are re-built for today's demand.

6 Copyright © Concurrent Engineering Research Center 6 Definition of Re-engineering "Re-engineering is 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."

7 Copyright © Concurrent Engineering Research Center 7 Path to Change is Re-engineering Bureaucracy is the glue that makes the current fragmented tasks come together to produce a result. You need it so long as the tasks remain fragmented and do not become a business process. Take nothing for granted, consider even that the existing process may be unnecessary, and wholly new needs may be present. Do not foreclose new processes because they will entail a change in the responsibility or power structure or organization. Re-engineering focuses on redesigning a fundamental business process, not on departments. Once a real work process is re-engineered, the shape of the organizational structure required to perform it will become apparent.

8 Copyright © Concurrent Engineering Research Center 8 Examples of Re-engineering IBM Credit Corp Managers walked through an actual credit approval request and found it took 90 minutes of work and 7 days of wait time. Solution: replaced a host of specialists by single generalist who did the whole process which took 4 specialists. No hand-offs. Ford Motor decided to pay on receipt of goods, after a check against the P.O. which is available on-line. No vendor invoice is needed. Reduced 500 person AP department to 125 person Procurement department. Elsewhere Ford pays when they use the vendor's brakes. Kodak did CE to speed up the development of a 35mm single- use camera in response to Fuji. Engineers in all departments worked simultaneously instead of sequentially, but shared changes every day and resolved conflicts. Cut 70 weeks to 38 weeks. And involvement of tooling designer early has made the design more inexpensive to manufacture by 25%. Reengineering means doing more with less.

9 Copyright © Concurrent Engineering Research Center 9 Rethinking Business Processes Question (perhaps unarticulated) the assumptions underlying a process. For example, "we pay when we receive goods". Combine several jobs into one (IBM Credit). A case worker or a case team replaces a department or a set of departments. Processes may require several versions. Instead of one standard process you have several different standard processes. Workers make decisions. Who else should? Search for parallelism and exploit it. Decentralize work when that makes sense, in terms of reducing cost and hassle.

10 Copyright © Concurrent Engineering Research Center 10 Rethinking Business Processes Reduce checks and controls. Replace transaction-by- transaction controls with aggregated controls, done at deferred time. Tolerate possibility of limited fraud. Minimize reconciliation (number of checks on something before it happens). Provide single contact case manager with responsibility to the customer to shield him/her form internal complexity. Exploit information technology to share information across boundaries. But do not automate old processes. You may make them harder to change, and the damage they do may be magnified. Combine the freedom, flexibility, and focus that comes from de-centralization, with the advantages that go with centralization (shared information, uniform procedures, etc.)

11 Copyright © Concurrent Engineering Research Center 11 New World of Work Business process re-engineering will cause other changes: in values, in metrics, in activity focus and even in the organization structure itself. 1Work units change from departments --> Process Teams. Process teams do not contain representatives from all the other departments involved. Rather, process teams replace all the departments involved. The team may have one person re-trained to handle several aspects, or be composed of many people. The team may be permanent (recurring work) or be episodic (product development) 2Jobs change from simple tasks to multi-dimensional work. Specialized repetitive assembly-line work is transformed into work that needs an understanding of the whole process and focus on getting to the point where value si delivered to your customer. An individual's work will be influenced by its cross-dependency with other people's work. Interface hand-off checking and controls are reduced and more of the time is spent adding real value. The challenge is that the work requires smarter people.

12 Copyright © Concurrent Engineering Research Center 12 New World of Work 3People's roles change -- from controlled to empowered. No longer is it enough to have people who just follow the rules. People need to work in a self-directed manner, adhering to previously accepted goals fo quality, deadlines etc. But they solve the problems themselves, not by responding to supervisory checks on them -- which waste time, anyway. Taking initiative, having self-discipline, and so on become the valued traits of an employee. 4Job preparation changes from training to education. Training is to follow a procedure (the what). Trained people fill a slot. Education is to think and understand the job (the why). There is only a rough slot and it will keep changing. The emphasis is on the ability to learn and re-learn. 5Performance measures and compensation shifts from activity to results. Because a process creates a product or service with value to the company, you can compensate teams of people on that basis, rather than for time spent, or pieces of paper handled, or joints soldered, or some such tasks. Reward systems turn away from years spent in company, or seniority, and so on to contribution and performance. Base salaries may be low, but bonuses for performance are high.

13 Copyright © Concurrent Engineering Research Center 13 New World of Work 6Advancement criteria change, form performance to ability. Pay for performance, and promote for ability demonstrated to grow into a new position. 7Values change from protective to productive. Do people behave as though the customers paid their salaries, or their boss paid their salaries? It is not enough to preach customer values, if the management systems then subvert them. At Xerox the warring among departments to fix blame stopped when managers' bonuses got tied to a measure of customer satisfaction. Do people believe they fail or succeed as a team? 8Managers change from supervisors to coaches. Traditional bosses: allocate work, supervise, monitor, control, check work as it moves. All this is done by teams themselves. No job here for managers. But teams need coaches, need people to ask for advice or solve problems. The characteristics of a manager are different from those of a worker, because the former has to take pride in the the accomplishment of others.

14 Copyright © Concurrent Engineering Research Center 14 New World of Work 9Organizational structures change from hierarchical to flat. Many of the decisions that required managerial meetings for communication and coordination of work, now get done by the teams themselves. It does not take that much managerial effort as it once required to put the fragmented tasks together again. Instead of departmental hierarchies, you now have strategic business units. A manager can control only ~7 persons, but he can coach 4 times as many. 10Executives change from scorekeepers to leaders. With re-engineered processes the team is doing the work and the higher ups are brought closer to the customer. The executive do not control the processes, but they do have responsibility to engineer and see to it that the processes are working and are the right ones. They cannot just say: make 15% profit or I will be very angry with you; they have to get in closer to the real work and lead.

15 Copyright © Concurrent Engineering Research Center 15 Business System Diamond Business Processes Jobs and Structures Management and Measurement Systems Values and Beliefs

16 Copyright © Concurrent Engineering Research Center 16 Enabling Role of Information Technology Using IT to speed up an existing process gives some advantage. But using it imaginatively to do something never thought possible before can cause vast improvements to occur. Entirely new classes of applications can result from new technology. The new technology is not meant just to do the same thing faster, but to create new needs (Say's Law in economics, supply creates its own demand). Alan Kay: "An important technology first creates a problem and then solves it". It is no use doing market research on a technology which consumers are unable to conceptualize. (e.g. Sony Walkman). It is the disruptive power of technology, its ability to break the rules which limit how we conduct our work, that makes it critical to companies looking for competitive advantage.

17 Copyright © Concurrent Engineering Research Center 17 Enabling Role of Information Technology Old rule:Information can only appear in one place at one time. Disruptive technology: Shared databases. New rule:Information can appear simultaneously in as many places a it is needed. Old rule:Only experts can perform complex work. Disruptive technology: Expert systems. New rule:A generalist can do the work of an expert. Old rule:Businesses must choose between centralization and decentralization. Disruptive technology: Telecomm networks. New rule:Business can simultaneously reap the benefits of both. Old rule:Managers make all the decisions. Disruptive technology: Decision support tools. New rule:Decision-making is a part of everyone's job.

18 Copyright © Concurrent Engineering Research Center 18 Enabling Role of Information Technology Old rule:Field personnel need offices. Disruptive technology: Portable computers and wireless comm. New rule:Field personnel can send and receive information wherever they are. Old rule:The best contact with a potential buyer is personal contact. Disruptive technology: Interactive Videodisk. New rule:The best contact with a potential buyer is effective contact. Old rule:You have to find out where things are.. Disruptive technology: Automatic identification and tracking technology. New rule:Things tell you where they are. Old rule:Plans get reviewed periodically. Disruptive technology: High performance computing. New rule:Plans get revised instantaneously.

19 Copyright © Concurrent Engineering Research Center 19 Enabling Role of Information Technology The potential of technology to move a company ahead dramatically has to be ongoing. In this way novel and unexpected uses of technology can gain large advantages. Imagination is needed. Watch for technologies that are just demonstrable today. Prepare internally to use them (conceptualize, evaluate, prepare people, plan deployment) and then you can be 3 years ahead when the technology actually arrives. It is the disruptive power of technology, its ability to break the rules that limit how we conduct our work, that makes it critical to companies looking for competitive advantage.

20 Copyright © Concurrent Engineering Research Center 20 The Hunt for Re-engineering Opportunities Org charts are well-drawn and visible. So are departments. But what we re-engineer are the processes that go on to accomplish a company's business, not the departments. We need to create process maps for the processes and name them in a way that shows the stat end end events. At a high level hardly any company needs more than 10 processes to do its work. For example, TI had 6: Strategy Dev, Product Dev, Customer Design and Support, Order Fulfillment, Mfg Capability Dev,and Customer Communications. Note that the Customer is right there in the middle as is not the case in an org chart, and so are prospects. If these processes are exploded you get sub-processes, again numbering no more than half a dozen per process, and there you will see who all are involved from which departments. The departments are not eliminated, they are just welded into the process maps and you will see where the important lines of communication between departments have to be installed. Process maps should only take weeks to construct

21 Copyright © Concurrent Engineering Research Center 21 Which Processes to Re-engineer? Cannot do all the high-level processes simultaneously. Select acc to : ¦ Broken: is the process in deep trouble? ¦ Importance: impact on the company. ¦ Feasibility Broken Processes Symptom:Excessive information interchange, particularly control information, and redundant data exchange and re- keying, etc. Disease:Arbitrary fragmentation of a process. If lots of messages are flying about, the solution is not necessarily to add more communication lines. People should be calling each other less. It may be there is not enough devolution of decision making. Or what they are doing may be so closely linked that it should be handled by one person, or one case team. Well-designed natural organizational units should send finished products to one another. Such units should have a thin pipeline connecting them to the rest of the world.

22 Copyright © Concurrent Engineering Research Center 22 Broken Processes Symptom:Inventory, Buffers, Redundant assets Disease:Uncertainty in supply, unpredictability of demand. SolutionDon't try to control inventory with elaborate inventory management schemes. Get rid of it. Plan. Manage the uncertainty. Work with suppliers, customers. Symptom:High ratio of work checkers, expediters and managers, to work doers. Disease:Fragmentation of work. Lack of inculcation of pride and taking responsibility for work. SolutionInternal checks may be necessary for auditing and control, but it should not become a governing principle. When it comes to non-finance-oriented work, let the workers do their own checking, perhaps in teams, let them police the standards they are to attain, and build that into the process.

23 Copyright © Concurrent Engineering Research Center 23 Broken Processes Symptom:Rework and iteration. Disease:(1) Lack of inter-communication throughout work process to keep everyone informed; or (2) tools and equipment and technique not refined enough for what is being attempted. Solution(1) Work as a process team responsible for end product or service and communicate continuously during work.(2) Invest effort in development or acquisition of tools to bring process "in control". Symptom:Too many special cases and exceptions, and therefore process complexity to deal with it. Disease:Originally simple process has been patched over and over again. SolutionRestore simplicity by creating several simple processes and deciding at the input which of several processes to use. One standard process with complex decision points all along its length is confusing and difficult and error- prone.

24 Copyright © Concurrent Engineering Research Center 24 Which Processes to Re-engineer? Consider the following: ¦Find the processes that most influence what a customer values. ¦How big is the scope of the process: if it crosses many departments and requires much change, it will have less likelihood of success ¦If major investments are necessary, that is a barrier. ¦How much commitment of top management and the process owner is there? ¦Is the process quite obsolete? ¦How does it compare with the best competitor's comparable process?

25 Copyright © Concurrent Engineering Research Center 25 Understanding Processes Step back and understand the current process at a high level. Do not go into gory analytic detail. Look from the output end and question is this the output that is desired by the customer, or can the customer ask for something more advantageous to his need? Look for simple, inexpensive, changes that look at the output from another standpoint and come up with different rules. Customers always ask for the same thing a little better or faster or more, in other words incremental change. But re- engineering is about dramatic change.

26 Copyright © Concurrent Engineering Research Center 26 Understanding Processes Old processes can take only so much fixing before the marginal benefits are not worth the bother. Get into the work environment and find out by watching. Do not sit in the office and interview. Get to understand the business. It is a source of ideas. Having figured out what should be the real objective of the process, learn just enough about the current process to to understand its what and why and basic assumptions -- it is not necessary to know its how because you are going to re-design it. Consider the customer's underlying goals and problems, not just the mechanics of the process that links the two organizations.

27 Copyright © Concurrent Engineering Research Center 27 Creative Redesign of Processes Redesign suspends existing rules and values, and allows imagination free play. It is not a formal deductive algorithm at work. But there are some precedents which will help First get a representative team together that has the charter to look into and improve some facet of the company's business that is having problems State the problems. Then in a 5 to 10 minute session have a team leader present the process undergone (in prose or in an annotated diagram). Get the team to refine it in case there are any disagreements.

28 Copyright © Concurrent Engineering Research Center 28 Creative Redesign of Processes Begin brainstorming on the process. ¦ Who are the people who make various decisions or contribute information or do some work? ¦ How long does it take at each station for a typical unit of work to flow? ¦ What iteration might be necessary? ¦ Whether there is a categorization of the work which might be relevant to deciding if a single process should be replaced bb several processes treated differently? An rule could operate right at the start. ¦Does the customer get exactly what his real need is without further work, or does the customer have to do more after he gets the service or product from you? ¦Are the decisions taken as early as possible, or do you take much additional time for checking? ¦Could the decision taken now at one point in the flow be done at an earlier point, simple by changing the responsibility, or assigning trust to an earlier person in the flow, and doing aggregated checking later? ¦How many information systems are involved in delivering the service?

29 Copyright © Concurrent Engineering Research Center 29 Creative Redesign of Processes Continue brainstorming on the process. Come up with big ideas. ¦Can one devise incentives for eliminating fraud or reducing exposure when the decision is to be taken without checking? ¦What is the time penalty of delay for the organization? What happens in the customer's mind when there is time delay? ¦Can you simplify things for the customer to notify you or contact you when he needs a service or product? ¦Are there some unconscious rules or assumptions at work in deciding at which point the service or decision is completed? Can that rule be broken? ¦Can two actions which are sequential today, be done in parallel? Can the result that will be known only at the end of the first task taken into account later, after the customer has been served? ¦If there is work being done to take care of the problem is the customer made aware of that fact, and when s/he can expect the completion? ¦Is the customer having to deal with a lot of different people to get his work done or can he be kept insulated form the internal intricacies of a company's working?

30 Copyright © Concurrent Engineering Research Center 30 Creative Redesign of Processes Some principles to keep in mind: Organize work around outcomes, not tasks. Involve as few people as possible in the performance of a process, if possible a single person with some help of technology. Minimize the number of hand-offs. Identify and annihilate assumptions. Harness information technology. Some lessons from experience: ¦You don't have to be an expert to redesign a process. ¦Being an outsider helps ¦Discard pre-conceived notions. ¦See things through the customer's eyes. ¦Redesign is best done in teams. ¦You don't need to know much about the current process.

31 Copyright © Concurrent Engineering Research Center 31 Selling Re-engineering within the Organization Two steps Top management has to make the Case for Action persuasively and tersely. Why must we re-engineer? Top management has to come up with a Vision of what they want to be. The destination of the re-engineering effort. The First Step: Makes the case for change, and forestalls attempts to fight change. Instills urgency. The Second Step: Articulates the purpose of the change. Scopes the extent of change needed.

32 Copyright © Concurrent Engineering Research Center 32 Selling Re-engineering within the Organization Case for Action Summarize what is happening, what is changing in the business environment in which the company operates. State frankly the business problem. Identify what are the new marketplace demands, perhaps being satisfied by your competitors. Diagnose important reasons why your company is unable to measure up to the demands. Estimate the cost of inaction to persuade everyone of the need for re-engineering. Must galvanize managers and employees to action, and fight off the lethargy of those on the sidelines.

33 Copyright © Concurrent Engineering Research Center 33 Selling Re-engineering within the Organization A Vision is an image without great detail: Must be powerful and visionary, not blasé. Must act as a flag to rally people when morale sags. Focuses on the essential and prevents people from being sidetracked. Provides a yardstick for measuring progress. Cuts through the doubt and uncertainty at the beginning of the change process. A Vision must suggest concretely how the company wants to operate.

34 Copyright © Concurrent Engineering Research Center 34 Bell Atlantic Carrier Access Service Re-engineering It took 15 to 30 days to connect a customer to his chosen long distance carrier. Competitors in metro areas were laying optical fiber to their door and doing it in one-quarter the time! Study found there were 13 hand-offs and 27 different information systems involved. Slow and expensive. Actual work involved was only 10 hours. Met their customers AT&T, MCI, Sprint to appreciate needs: on-demand connection and zero defects. Set up a team to re-design with the goal of zero cycle time. Key operating problem of the CAS division was recognized.

35 Copyright © Concurrent Engineering Research Center 35 Bell Atlantic Carrier Access Service Re-engineering Team was staffed by a woman with high respect and good communication skills. Had experts from all the disciplines in the fragmented CAS process. The challenge of zero cycle time meant it needed selling to convince people to take on the problem. In one month they redesigned the process. ¦Physically pulled together under one common supervision all the functions of the old process. ¦Eliminated geographical dispersal and separate management. Solved the fragmentation which was at the core of the problem.

36 Copyright © Concurrent Engineering Research Center 36 Bell Atlantic Carrier Access Service Re-engineering At this point a lab team implemented the redesigned process in a pilot project in one area and was empowered to make whatever changes it needed. The lab team had operational responsibility and reduced the time to days instead of weeks, sometimes hours only.. Then extended to all areas of Bell Atlantic operation the same process. ¦Identified culture changes. ¦Identified new job skills. ¦Identified modified information systems needed to support. Commitment to making things happen replaces compliance with doing what the manager tells.

37 Copyright © Concurrent Engineering Research Center 37 Bell Atlantic Carrier Access Service Re-engineering In the next step the case team to deliver the CAS service will be replaced by one case worker plus some new technology. One worker will take the customer request and from his/her terminal will make all the electronic connections necessary to complete the request. After doing the connection s/he will do all the work needed to bill and keep records. In a later step the customer will be able to interface directly to the Bell Atlantic CAS system and have their request done without intervention of a BA worker at all. Self-provisioning! Zero cycle time will be achieved in 3 steps, and there will be great reduction in cost, increase in customer satisfaction and elimination of errors.

38 Copyright © Concurrent Engineering Research Center 38 My Questions What happens to all the people laid off? Growth in productivity is at the cost of unemployment, as the recent US phenomenon of "jobless growth " demonstrates. If you need more generalists, how come we train specialists only (e.g. in medicine where specialists constitute 75% of medical students graduating in USA)? And we recruit on that basis also.

39 Copyright © Concurrent Engineering Research Center 39 KINDER, GENTLER REENGINEERING A follow-up to the enormously popular book "Reengineering the Corporation," the new book "Reengineering Management" (by one of the first book's co-authors) offers a less aggressive plan for management action. Instead of the tough-guy approach of the first book, James Champy proposes a "new mindfulness" characterized by trust, integrity, imagination, and a cooperative spirit. The book's wisdom in a nutshell: The purpose of a business is 1) to serve customers, 2) do useful and meaningful work, 3) create an organizational culture that serves people's needs, 4) act in a "mentoring, participative" manner rather than an autocratic one, and 5) have employees who can work as a team and communicate with people. Champy admits that the reengineering movement has not fulfilled its promise, and blames this failure on managers who continue to operate with obsolete thinking. (James Champy, "Reengineering Management," Harper Business, 1995)

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