Seventy per cent of all reengineering efforts fail, according to the concept's own inventor Michael Hammer. So why should CEOS adopt a concept with only a 30% chance of success? If they do, how can it be made more beneficial?
Hammer's radical new vision for CEOS can provide a company with a powerful new vision and drive success. Some of the results we have seen from those who have taken on the concept have been truly spectacular, from the cutting of headquarters' structure costs by 25% or the reduction of pharmaceutical development time by one-third and development staff numbers by 50%, to the halving of semiconductor development time. We have also seen contract documentation reduced by 75%, with the cycle time being reduced from seven to three weeks and process costs cut by 50%, as well as new product development for consumer products reduced from 18 to six months.
The radical nature of reengineering is both the essence of its appeal and the seed of its frequent failure. What is needed is a vision coupled with a practical road map for organisations to plan and successfully implement change through reengineering. Having successfully implemented reengineering programmes with numerous clients, Bain & Company believes that this popular Hammer definition of business process reengineering, while provocative and compelling, needs reexamination and enhancement to drive results.
According to Reengineering the Corporation by Michael Hammer and James Champy, "reengineering 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." Breakthrough technology is defined as the enabler of this radical change. Thomas Davenport in his book Process Innovation agrees that "it capabilities... when described and discussed in non-technical terms... and applied to process problems can work miracles" but he cautions that it alone cannot work miracles. The words fundamental, radical, dramatic, breakthrough technology and miracles are appealing, but they are potentially misleading. Let's look at why this is so.
As ever, the gap between theory and real life experience is a factor to take into account. First, the management theory stipulates fundamental rethinking, but where does one start? Hammer argues that fundamental rethinking is primarily a creative process where one should not waste too much time on the past. We believe fundamental rethinking is both fact-driven and creative. The facts are essential to the diagnosis, the creativity being the key to successful redesign. A clear fact-based picture of the current state including process maps and effectiveness measures will motivate management around the compelling need for change.
Radical redesign of core process
A good example of this is a multinational consumer goods company which was struggling to bring innovative products to the market quickly. Managers knew that decision making was slow and tedious, but did not understand why. A flow chart that diagrammed the 57 steps, both forward and backward, required to launch a new product proved beyond a doubt that the process was highly flawed. Managers agreed that radical change was urgently required and therefore willingly tore the process apart. The result of this decision-making redesign was a reduction in the time required for new product development and launch from t8 to six months.
Reengineering theory calls for radical not incremental redesign of core process. But in reality, one person's radical is another persons incremental and there is a wide grey zone between the two extremes that we call tactical. What often happens in reality is that a management team develops a vision of a radical plan, but then decides not to implement it fully for fear that it would break the machine, and tear the organisation apart. Market dynamics and organisational realities (such as the CEO'S willingness to take risks) may dictate a slower, less radical implementation of the vision.
When, for instance, one international over-the-counter (OTC) pharmaceutical company decided to redesign its European headquarters operation to make it more financially fit and responsive to its customers - its own country organisations - it decided in the end to take things slowly. A fact-driven diagnostic had revealed many problems, including a substantial overlap between activities performed centrally and those performed locally, an overload of people in HQ marketing and development focused on both local operational support and pan-European strategic issues, and a fundamental lack of communication between the countries and headquarters. Thus, key decisions made exclusively at HQ, such as new product development, received very limited support in the countries.
As a result, this organisation did not operate cost-effectively, nor did it provide timely market response. Drastic action - redesigning headquarters to focus on strategic and not operational issues, assigning operational responsibilities to the countries close to the customer where sales are and decisions should be made - appeared inevitable. In addition, cross-functional, cross-border team building was required to increase communication and cooperation between various units, particularly regarding new product development efforts.
This headquarters management team did create a radical redesign of its HQ focused around key decision-making processes. However, when the impact of the new streamlined, strategically refocused headquarters was fully understood (50% headcount reduction in several departments), the CEO and his management team could not bring themselves to implement the plan in full. Enjoying a healthy profitability record, managers did not feel any urgent need to reduce headcount dramatically, but rather chose to reduce personnel by 25% and redeploy people in key revenue enhancement functions. All the other strategic redesign recommendations were fully implemented.
The result was faster, better decision-making and focused new product development, despite the reluctance to implement the maximum cost reduction. For this management team, the reengineering was successful, though not radical (and a 25% cost reduction is not to be sniffed at). Their new organisation was a creative mix of horizontal teams and vertical functions, better able to respond to the rapidly changing OTC market. Think it through rather than do it now
Think it through rather than do it now
How should companies wishing to undergo the reengineering process identify and select the core or strategic core processes to reengineer? Hammer lists some recurring processes such as product development from concept to prototype; sales from prospect to order; order fulfillment from order to payment; and service from inquiry to resolution. Significant effort is required to move from this standard list to a focus on the most leveraged processes to address. Further, this list reinforces the dangerous desire on the part of many corporations to do it now rather than think it through.
There are several pointers for those wishing to make reengineering work for their corporation. Correctly identifying those strategic core processes that require redesign and which will create substantial value for the organisation is a good place to start. Defining the scope increases the probability of success. Having passed this first hurdle, the focus and scope of the reengineering effort must be carefully and continuously evaluated, while artificial organisational unit boundaries must not be imposed despite management's natural tendency to do so. A process such as customer order fulfilment can extend beyond the limits of any single organisational unit, from the consumer and customer, through the work performers within the organisation and back to suppliers.
The OTC company cited earlier, for example, originally planned to reengineer only its headquarters organisation but it quickly became clear that a holistic evaluation of the relations between headquarters and the country organisations was required if HQ was to be redesigned. In fact, the interfaces between functions and business units, suppliers and customer, often create the greatest costs and time lags since there is typically no one who is aggressively managing these boundaries.
Further, it is often the sub-processes, such as work flows, material flows, information flows, financial flows, decision-making processes or a combination of these that are the real drivers of inefficiency. Defining and limiting scope is therefore a constant challenge.
Both Hammer and Davenport believe that enabling IT is required if organisational reengineering is to be achieved. However in our experience, successful technical solutions range from appropriate to breakthrough. Some reengineering efforts require a critical evaluation of systems first, while in others, processes have been simplified and redesigned first, with technology applications addressed later.
Many processes break down because of inconsistent information flows. Decision-makers do not have access to the information needed to make efficient and effective decision is that they force consistent standardisation of information flows, regardless of the extent to which they embody major or minor changes.
For example, a us-based healthcare company believed reengineering its service office structure would require breakthrough technological solutions to drive radical performance improvements. Leading-edge technology solutions were evaluated to link the company via integrated workstations to external constituencies such as doctors, nurses, pharmaceutical suppliers and patients. Such an investment, however, could not be justified immediately because of the company's inability to finance the systems. Instead, managers adopted a practical approach which set them on the proper path for the future. The company achieved substantial improvement through simple investments in modular workstations to eliminate manual re-entry steps, integrate existing admissions/reimbursement systems, and create a computerised patient tracking system.
The result of fundamental rethinking and the radical redesign of business processes using breakthrough technologies is seen by reengineering advocates as dramatic improvement in such areas as cost, quality, service and speed Unfortunately, even with extensive analysis' and an exciting technical solution, dramatic improvement is not guaranteed, if only because the human factor is always the deciding element. Individual and organisational inertia are the key barriers to any change, and can be an even more significant deadweight when it comes to reengineering, given the fundamental nature of the changes it brings in tow. A proactive change management program must therefore be planned and executed from the very beginning of the reengineering project it involves and motivate the key players.
How does a corporation actually make reengineering happen? The first step in any reengineering programme is a comprehensive diagnosis of the current situation in order to select the most strategic core processes. Reengineering should only be applied where strategic advantage and significant financial benefit can be achieved (see box).
The second step is the redesign itself. The objective is to formulate a new breakthrough process that is driven by customer needs, is innovative and pragmatic and results driven. The redesign must build the business case for the implementation of the new process in economic and strategic cost/benefit terms. It must involve people who have been selected to drive forward to a creative solution. A typical structure includes an advisory steering committee, task force and focus groups. Incentives and/or job guarantees should be provided for those individuals who are involved since they may be redesigning themselves out of a job.
The redesign phase includes diagnostic analysis and brainstorming, using zero-based process design and insights from world-class competitor benchmarking. Non-value added activities should be identified to focus the brainstorming efforts. The management information systems staff can play a valuable role in contributing to and monitoring the process redesign.
The ground rules of the redesign effort are to eliminate hand-offs, consolidate work, adopt a system cost perspective, design for effective decision making, manage process complexity and use IT creatively. Evaluations of state-of-the art IT solutions are of course important, but IT should be a servant of the process, not its master.
The team should develop a range of alternatives. For each, the investments, costs, benefits and risks must be evaluated. At the end of the redesign phase, the team should deliver a series of prioritised new process options that offer major improvement in service and cost (including a blueprint of process design); a list of quick hits for immediate implementation; and a clearly articulated economic rationale for the implementation of the improved process; and a detailed justification of why and how the changes should be made.
The third step in the reengineering project is experimentation, which includes the translation of the concept into a prototype, followed by the launching of a pilot programme. The objectives of the prototype and pilot phase are to evaluate and test the feasibility of alternatives identified in the process redesign, match IT capability and solutions with process design alternatives, select the optimal timing, and create a detailed implementation blueprint. The IT team and the human resources team play a critical role here. As with the steering committee or task force, the people selected to participate in the pilot programme should be preordained as survivors of the redesign. Once the pilot programme has enabled the team to correct immediate problems, it is time for step four, implementation.
If, however, the sort of dramatic results outlined above are to be achieved, we believe that the following preconditions must be met.
The reengineering process requires the support of additional change management tools. The challenging task of reengineering can only be realised in the right company environment. Success or failure of a redesign is almost entirely dependent on an organisation's willingness to embrace fully the implications of change. Strong CEO and senior management leadership and support are critical to motivating the organisation. While most CEOS genuinely want to become more flexible and responsible, they often do not realise the magnitude of change that is required to get there. To be successful, CEOS need not only to create a powerful initial vision, but also to enlist the full support of additional change managers.
As with many new efforts, a reengineering exercise will pass through the classic phases of disinterest, anticipation, hostility and finally conviction or outright failure. To overcome the lack of commitment or fear, several conditions must exist. Top down leadership and commitment must be strong and visible. Stretch goals need to be established with a clearly stated value associated with success.
Organisational leaders should be assigned to the new processes and become the new process owners. Incentives must be associated with the goals.
Management must over-invest in communication and involvement in order to build a trust-based process. The purpose must be constant and early successes must be publicised. Finally the reengineering process itself must be highly visible to prevent the organisation from backing away from the challenge.
Clearly stated missions, goals and timetables for the change process are critical and progress must be measured against agreed upon milestones. The process redesign must be translated into detailed human resource plans including job descriptions to help set the individuals within the organisation on a new path.
The organisation must allow enough time to do the job properly. Reengineering is not a quick fix and time must be allowed to ensure complete communication of all the changes. The process can take up to a year or more in order to allow the organisation to participate in and absorb all the changes. This practical approach can turn a 70% risk of failure into a near-guaranteed success.
The following is a representation of how a reengineering process looks to a key participant
Our cross-functional team charged with finding how to reduce administrative costs finally chose to reengineer estimating. Some are unconvinced, but agreed it would not hurt to analyse the process. % We've finally mapped out the estimating process. There are over 1,500 steps involved and roughly 750 people. It was difficult, but we captured the amount of labour time and span time in each step.
We presented our findings to our senior management today. We showed that only 30% of the estimating labour is spent on estimating, while 70% is spent on documenting, reviewing and coordination. The process takes about seven weeks and costs $8,ooo per estimate. What really caught their attention is that small estimates, which make up 65% of the unit volume and 2% of dollar volume, take as long as large estimates. While some are still uneasy about reengineering the entire process, they all agreed we should put together a team to reengineer small estimates.
The team was only given six weeks, but we put together a plan we believe will reduce the time needed to draw up a small It involves cutting out almost all documentation, most authorisation requirements, negotiating rates upfront with our customers and reorganising into a cross-functional team to execute the work.
We met Tom, v~ of contracts and estimating today. He liked our recommendations but isn't sure how to implement them. As he is only responsible for assembling the functional pieces of the estimate, he does not have the authority to set up a cross-functional team.
The president of the company announced today that Tom has been appointed owner of the estimating process. Tom assumes this means he is now to implement the recommendations in the small estimating process. Feb 17 Tom has been busy. In the past few weeks he has met each functional vice-president and explained our recommendations. All have agreed, but some are opposed to the team approach. He has also met our biggest customer and they agree with the concept, although they want to see an example of the reduced documentation before they agree to it. They say that negotiating the new rates will take a year. It sounds a long time, but they say that most proposals take over two to get on contract
Tom has been trying to improve the process for large estimates. Most of the senior management agrees that the whole proposal process has to change, and there seems to be consensus that he ought to own it. Tom and I have talked about using a Small Estimates Team to assemble the whole proposal, eventually using the same concept for large proposals too. May 10 Everyone is struggling with what this Small Estimates Team will look like. What will their responsibilities be? How will they be evaluated? I wrote a 12-page answer to these questions for everyone to discuss and start building consensus.
The Small Estimates Team met for the first time. It took longer than expected to select the representatives on the team. For the most part everybody accepted our recommendations. The team seems to be working well together. Members are still a little unclear how to balance their allegiance to their functional department with their allegiance to the team. They have started to work on a couple of estimates. The people in the functional departments who disliked the concept of a small team are telling everyone that we have not changed the process at all. I have had to tell everyone that we have eliminated a great number of steps, mostly involved in hand-offs, authorisations and coordination of work. More will come once the customer agrees to reduced documentation and we have negotiated the rates.
We have continued to meet our customers. They all seem lukewarm to the idea of reducing documentation, but want to see a live example of what the estimate would look like before they will sign off. The team will put together an example as soon as they can.
I We added a person from contracts to the team. Now the team can submit the estimate to the customer's fact finding and negotiate. Tom believes he can eventually add someone from engineering to write the technical part of the proposal, and that we can train the team to do schedules. Then it will be a flill proposal team.
The Small Estimates Team has finished ii estimates. They have taken about 24 days each -close to the expected three weeks.
We renamed ourselves the Proposal Team One today. We aren't responsible for the entire proposal yet, but it will happen. The team is beginning to be accepted by everyone.
Anne Bonaparte, manager, Bain & Company,San Francisco
Gib Carey, consultant, Bain & Company San Francisco