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Business Process Reengineering

 
 Business Process Reengineering: Cure or Curse?
 
This article was published in Electronic Commerce World (January 1998), Business Solutions through Technology Integration. Electronic Commerce World formerly EDI World is published monthly by EDI World, Inc.

Prepared By Dr. Mir F. Ali

In spite of a tremendous growth in the use of the Internet and availability of sophisticated databases, organizations around the world are convinced that the cost of acquiring customers and employees is still fairly high. They are also convinced that these costs are having a direct negative impact on their bottom line. Sustaining customers/employees and maintaining a loyalty based system is always a real challenge for any organization. It is widely recognized that customer retention is the direct result of a high level of customer satisfaction.

Successful organizations understand and appreciate the fact that employees have the most influence on their customer's level of satisfaction. As such, many of these organizations have taken advantage of the Business Process Reengineering (BPR) discipline and reengineered their business processes with the focus of providing cost effective products and services on a consistent basis to gain the trust and confidence of their customers. At the same time, these organizations ensured that the career paths, job contents, and compensations for their employees were also "reengineered" to seek and sustain the satisfaction of their employees.

BPR is a tool which could help organizations to reduce their operational overheads, increase productivity, sustain customer/employee satisfaction, and improve profitability by:
  • Refining/redesigning their business processes;
  • Managing/using their corporate information effectively;
  • Making use of information technology efficiently; and
  • Developing/enhancing human skills to improve the overall performance.

The process oriented concept was originated and perfected in Japan and it gave birth to the Just-In-Time (JIT) manufacturing and Total Quality Management (TQM) tools and techniques to gain significant improvement before they targeted the west for their products. The introduction of Japanese products to the American market was a wake-up call as it revolutionized the marketplace and left the American businesses with no choice but to follow the Japanese tools and techniques to beat them at their game. It was a matter of survival for American businesses.

It took a while, but the American businesses capitalized on the knowledge and wisdom they learned from their Japanese competitors and devised a mechanism (BPR) which 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. BPR drives corporate metrics, causing them to focus on external measures of success such as improved market share.

It did not take too long for desperate companies who were interested in continuous improvement to adopt the BPR discipline in America. The BPR approach was originally designed for the manufacturing sector but gradually it was modified to be used in the service sector. The overnight popularity of BPR created an excellent niche for consulting services and it created a multi-billion dollar market within a few years. The American success stories helped other countries take advantage of BPR to rapidly improve their businesses.

It is amazing that the spirit of BPR is carried out in different ways in different countries depending on the attitudes, aspirations, and expectations of the organizations involved in the process. New Zealand, as a country, has gone through a difficult period dealing with fiscal realities and they have embraced the phenomena of BPR in a true spirit, not only to survive today but also to continue to live in an environment where continuous improvement becomes a critical part of their society. They capitalized on the virtue of BPR and it enabled them to start thinking horizontally. This attitude afforded them with an opportunity to focus on providing cost effective products and services with an intention to share the associated benefits with their clients and stakeholders. For instance:

  • The New Zealand Post reported a record profit of $75.2 million in year 1995-96 despite lowering the standard postal charge from 45c to 40c. New Zealanders celebrated by offering free postage on all hand-addresses 40c letters posted on the first Monday in July 1996. The reduction of the standard postal charge from 45c to 40c cost about $25 million annually. The New Zealand Post also reduced charges for high-volume, medium-sized business letter mail, for the third time in two years. It followed the abolition of the rural delivery fee at annual cost of about $7 million.
  • Another success story came from how the government of New Zealand overhauled their Taxation System. The overhaul resulted in a significant reduction in overhead and they became one of the leading countries in the world with the lowest cost for collecting income taxes. Similarly, as a result of overall streamlining and optimization of government processes throughout the government, the income tax rate for lower income levels has been reduced significantly.

No doubt there are numerous BPR success stories in Canada, too. Unfortunately, these stories only reflect the immaturity of the approach adopted for conducting BPR in Canada. Frankly speaking, these are not too many Canadian success stories where the public has directly benefited from the BPR initiatives in any public or private organization. As a matter of fact, Canadians broke one of the cardinal rules of BPR which suggests not to jeopardize the level of quality of service in the name of improvements. The majority of BPR initiatives in Canada seem to focus on reducing operational costs by eliminating jobs, cutting back services, and coming up with creative ways of charging more for the existing services. For instance:

  • Bell Canada has eliminated thousands of jobs as a result of their BPR initiatives and are anticipating around a billion dollar profit in 1997. Yet, the government is allowing this corporation to increase monthly basic charges by $2 as Bell Canada is having difficulty competing with other firms in the long-distance market;
  • As a result of overall BPR efforts, Canadian banks have improved profitability tremendously. They have made billions of dollars profit, let thousands of people go, and yet continue to charge more for their services everyday;
  • In spite of BPR efforts and associated improvements (including the lay-offs), Canada Post Corporation is continually striving to increase the basic postal charges in order to subsidize their losses generated due to their inability to compete with other corporations in the areas of other postal services. Yet the government is allowing them to increase the price of stamps; and
  • There are all kinds of BPR related initiatives going on in the medical service industry, but the results are no different. The standard basic medical services have been reduced, the list of free medicine for senior citizens has drastically been minimized, so called handling charges and user fees are introduced to subsidize costs, hospitals are closing, and people are laid off everywhere.

It appears from our research that the majority of Canadian BPR initiatives seem to be designed vertically to reap maximum benefits of improvements by the individual organizations or generate additional revenue to subsidize their inefficiency, incompetence, and mismanagement. This breaks another cardinal rule of BPR which promotes horizontal thinking with the intention to minimize the overall impact on people involved, maximize chances for sharing benefits with their clients and stakeholders, and reward employees for their contribution and performance.

Canada is not unique from this point of view. Incidentally, in the conduct of BPR initiatives and restructuring efforts, hundreds of companies in the USA have also eliminated jobs and laid-off thousands of people. For instance: GTE recently cut 17,000 employees, NYNEX Corp eliminated 16,800 workers, Pacific Telesis has eliminated over 10,000 employees, and the first Interstate Bankcorp eliminated 9,000 jobs. In Germany. Siemens cut costs by 20 to 30 percent and eliminated 16,000 employees, In Sweden, ICA, Stockholm based food cooperative, eliminated 5,000 jobs. In Japan, the telecommunications company NTT eliminated 10,000 employees in 1993 and as a part of its restructuring program, staff would eventually be cut by 30,000 which represents 15 percent of their original staff.

According to The Wall Street Journal, across the entire US economy, corporate reengineering could eliminate between one million and 2.5 million jobs a year from the foreseeable future. Some studies predict that by the time the first stage of reengineering runs its course, a lose of up to five million jobs in a private sector labour force that currently totals around 90 million workers will have taken place.

Unfortunately, these organizations do not even realize that the elimination of jobs and massive lay-offs are creating a new class within our society for the victims of BPR initiatives. These people have given their best years to develop, promote, and sustain businesses and ended up with the skills, experience, and expertise which were declared to be redundant and surplus. This is not the first time people have become victim of new trends.

If we take a brief look at history, technology was blamed in the past for dramatic impacts on the workforce. Farming used to be the major occupation before the introduction of technology around the middle of the 19th century. Machines reshaped our lives and the way we worked. This was the time we started to depend on machines to get things done. As a result, the workforce in farming started decreasing. At the turn of the century the workforce in farming reduced to a third and continued to reduce. At the same time, technology also created new jobs and new opportunities. Factories came into existence and hundreds and thousands of people started working in factories. It provided an opportunity to train farmers to become factory workers.

While technology created jobs, it also trimmed down the jobs in the name of automation. Consequently, between 1960 and 1990, output of manufactured goods of all kinds continued to rise, but the number of jobs needed to create that flow of production fell by half. Overall job opportunity improved greatly but people lost their jobs to machines. This gave birth to a new sector called "Service" - teachers and lawyers, nurses and doctors, maids and bay-sitters, government officials and traffic cops, file clerks, typists, custodians, salespeople. It is impossible to estimate with any degree of accuracy the number of "service" employees in the early 19th century, but by 1870 there were perhaps three million in the diverse branches of this sector, and by the 1990s nearly 90 million. Service employment thus saved this - and other modern economies - from absolutely devastating unemployment.

In the case of victims of BPR initiatives, there are no new significant opportunities available to capitalize on the expertise these people are capable of providing, and there is no way any government can create enough new jobs to overcome the situation of unemployment. The emerging new sector, knowledge workers, is going to absorb only a fraction of the total unemployed population. Whatever new jobs are being created, they are in the low-paying sectors and generally temporary employment. As a result, unemployment is growing everyday and it has a direct negative impact on the overall economy.

Gary Hamel and C.K. Prahald in their book, Computing for the Future, noted that the social costs of restructuring are high and although an individual firm may be able to avoid some of these costs, society cannot. In Britain, the service sector could not absorb all the displaced workers and underwent its own vicious downsizing in the recession beginning in 1989. They further stated that much of the cutting in British companies and around the world was necessary, even if first time workers often bore more than their share of the pain. Unproductive layers of management had to be excised. dumb acquisitions unwound, and flexible work practices abandoned. Yet few companies ask themselves: How will we know when we are done restructuring? Where is the dividing line between cutting fat and cutting muscles?

Organizations should review their business environments from a strategic point of view before they take any corrective action. This will provide them with an opportunity to develop some workable options to overcome the difficulties. BPR is an excellent tool and has the capability to cure the problems associated with the traditional inefficiency, mismanagement, and incumbency. However, if BPR is not used as an enabling tool, it has the potential to be turned into a curse - increasing unemployment, adding extra burden on an already overloaded social welfare system, further depressing the total economy, and adding unwanted misery to human lives.

Now, it is entirely up to the organizations to decide whether they want to use BPR as a cure or simply allow it to become a curse.
 

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