How Process Enterprises Really Work by Michael Hammer and Steven Stanton Presented by Jeff Schott CS457 Fall 2005 Harvard Business Review, November-December 1999

Process Enterprises What is a Process Enterprise? –“Flexible groupings of intertwined work and information flows that cut horizontally across the business, ending at points of contact with customers.” –Replaces traditional organizations Sets of discrete units Well-defined boundaries

Business Process Reengineering Benefits –Operate faster and more efficiently –Use information technology more productively –Employees have more authority and a better view of the big picture –Higher-quality products and service –Dividends to shareholders through reduced costs, increased revenues, and higher stock values

Impediments to BPR Many companies have reorganized core processes, but not the entire organization Power still resides in vertical units Integrated processes and fragmented organizations create cognitive dissonance

Successful BPR Implementation Appoint best managers to be process owners Give process owners authority over work and budgets Shift focus to process goals Base pay and advancement on process performance Focus training on whole process Cultural focus on teamwork and customers

Case Study – Texas Instruments Calculator development teams –Drawn from various departments –Responsibility from inception to launch Initial results not encouraging –Teams barely functioned –Sabotaged by existing organization –Unwilling to cede people, space, responsibility –Conflicting orders from team, department

Case Study – Texas Instruments Organization changed –Teams became primary business units –Old departments refocused on training –Process owner management role created –Budgeting by process –Office space reconfigured Improvements –Time to launch reduced by 50% –Break-even points reduced by 80%

Case Study – IBM Standardize Global Operations Processes assigned to members of the Executive Committee Units expected to follow processes Improvements –75% reduction in time to market –Increased on-time deliveries –Increased customer satisfaction –$9 billion savings

Case Study – Owens Corning Enterprise Resource Planning System Managers were rejecting or modifying ERP Companywide process teams created Improvements –50% increase in inventory turns –20% reduction in administrative costs –Millions in logistics savings

Process Owners Senior managers with end-to-end responsibility for processes Must have authority over design, measurement, and training Process ownership is permanent –Process designs evolve with business –Old organizational structures will reassert themselves Separates control of work from management of workers

Case Study – Duke Power Improve customer service in the face of deregulation Identified 5 core processes –Each assigned an owner Owners given authority over –Designing process –Setting performance targets Improvements –More installations per day –Meets 98% of construction commitments (up from %)

New Style of Management Cooperation is unavoidable –With other managers –With process workers Duke Power developed a “decision rights matrix” –Which managers make certain decisions –Who is consulted beforehand –Who is consulted afterward

Process Standardization Benefits –Lowers overhead costs –Presents one face to customers –Increase organizational flexibility Disadvantages –Different customers cannot be served differently Some companies do both –Standardize as much as possible while still meeting diverse customer needs –Harder to impose standard than allow diversity

Making the Transition Determine relevant changes Connect to overall strategy Appoint high-profile executives as process owners Set realistic expectations Don’t try to do everything at once Choose one unit as a prototype Gain commitment of senior employees to avoid resistance

New Process Infrastructure Measurement Compensation Facilities Training and Development Career Paths

Is It Worth It? Capitalize on new opportunities Process is as important as presentation Dynamic processes for changing markets

Does it Work? 70% failure rate Excuse for job cuts Ignores human dimension Is actually time sensitive New processes means new problems –Untested solutions –Security issues Is being phased into ERP, BPM, Six Sigma Source: Wikipedia [Business Process Reengineering]