Business Reengineering
For many years, companies are managed mostly by graduates from business schools and degree in business administration is the key to get into management and executive positions. It all changed in 1990s when Michael Hammer, a professor of computer science at Massachusetts Institute of Technology (MIT) proposed that Information Technology can be used to increase the effectiveness and efficient of business. Therefore, the management of information technology is becoming the needed skills for business in the 21st century. He advocated that since software can be applied to manage and collect data, faster, better and more accurate, company must systematically starting over the way they do business by integrate information technology to meet the needs of the new century. He used the phrase “Re-engineering” and his idea has revolutionized the entire business industry.
Dr Hammer wrote “Companies must rethink their fundamental of business and radically redesign their way of doing business by integrates information technology to achieve dramatic improvements in performance.” The idea was so popular that it was immediately adopted by over 80% of large companies in the U.S (The Fortune 500) then spread quickly into Europe and Japan in 1993. By applying information technology to business instead of people, company owners have all the facts and data much faster to identify their inefficiency as well as their bureaucracy that they have created over time. By applying information technology, company owners and managers are able to see all information that often hidden from them for many years. An large manufacturing company executive told the Wall Street Journal: “I did not know that it took several weeks for my written memo to reach workers at the factory floor. But the most surprising was what I wrote has been modified when it went through many levels of management so when it reached workers, it did not means anything. With information technology, I can send emails and within second, all workers receive it exactly as I wrote. Information technology is wonderful.” Another company owner added: “By having information technology systems collecting data, and measures our company outputs, I know exactly our productivity, our revenues, and our cost within second rather than several weeks. As the owner, I can make decision faster by having all information that I needed. Information technology is indeed essential for all business.” Within few years, from banking to manufacturing, from government to privates, the term “Re-engineering” has become popular and widely applied all over the world.
Dr. Hammer put his idea in his first book “The Reengineering Revolution” and it was immediately sold million copies in the first month and considered as the “must read book” for all executives. He started with a phrase that even today is still considered a prophesy: “Company that does not focus on its customers and does not have the processes that produce value for its customers will not last in this world.” He concluded the book with a simple advice: “Finding out what customers really want, then designing processes to meet that demand.” The book consists of several chapters but the key concept is to focus on defining a process for every key activity in a company rather than relying on personal direction of management. He predicted that in the 21st century, companies will have to compete fiercely for market position and efficiency is the key factor to come out ahead. Companies that have excellent process will be the most successful, most profitable, can grow quickly and eliminate competitors. He wrote: “By having information technology that enable the business processes, managers can access data and make decisions quickly and problems can be resolved as soon as they happen.”
Since his idea was widely adopted all over the world, he spent the next several years to collect data and analyze them then in 2004 he published another book called “Reengineering the Corporation” where he wrote:” Many companies from Dell to Toyota, from Southwest Airlines to General Electric have flourished not because of what they do but because of how they do it: By having excellent processes in place and have their people follow them, they simply operate much better than their rivals. By the time he published the second book, there were significant changes in the global business. The competition among companies was so fierce that over 70% of large companies had disappeared from the market, due to their inability to compete with stronger and better companies. Companies like Toyota and GE saw their stocks increase in value several times and continue to grow faster and bigger. Toyota was the first Japanese company to adopt Dr. Hammer’s idea and having the best quality products. A company manager explained: “We have been building cars for many years, we have our manufacturing process in place but until we apply information technology to collect metrics and were able to make decision quickly, our quality improved significantly. It was this excellent process that we started to build high quality cars like the Lexus to compete with Mercedes and BMW. Our success was based on the idea of Dr. Hammer.”
In 2007 Dr. Hammer published his third book called “Faster, Better and Cheaper” where he advocated that business process need “innovation” to take it to the next level. To do that, it requires technical knowledge and suggested an integration of business and technology into a new field called “Information system management”. He warned that in the information age, it is essential that company executives must have knowledge about technology. He wrote: “To be in leadership position, executives must have both technical and business skills because they are the only lasting basis for superior performance”. At that time, there were a lot of resistances from business schools people, many considered him as computer person not business person and should not meddling into the business area. Several business leaders called it: “Bold claim but exaggerate”. Only few top universities such as Harvard, MIT, Stanford and Carnegie Mellon adopted his idea and opened a new field that integrates business and technology. Not until after his dead in 2008, people began to realize his wisdom as represented by successful technology companies such as Apple and Google, who both continue to thrive because of their innovative products and services.
The business “re-engineering” concept is based on the term “processes” which are a set of activities defined clearly at both strategic and operational level. It was described as a “fundamental rethinking and radical redesign of business to achieve dramatic improvements in cost, quality, service and speed”. The concept requires management to analyze the company’s traditional way of doing business which is based on a vertical functional structure, break them down to smaller tasks using a simple model called ETVX (Entry criteria, Exit criteria, Task, Verification and Measurement) then reassembling them in a more efficient horizontal process where workers can be trained to follow them for consistency. Dr. Hammer wrote: “Without process, everything is based on individual direction and personal preferences. This type of operation is very inefficient. It is often used to hide information, hide the inadequacy of management, hide the inefficiency of operation, and promote bureaucracy. Individuals often abuse the system by protecting their own function, their own positions and their own jobs. This is not acceptable in this time where global competition is critical. By eliminate this type of functional “vertical silos” then re-assembling them in a “horizontal process”, management can expose company wastes, inefficiency, and forces the companies to look at new ways to reduce waste and streamline themselves.”
Nobody disagreed with this idea of “re-engineering” but most managers are happy to impose it on others but not on themselves. Many used it as reason to lay off workers instead of improve the operation and gave “reengineering” a bad name. During 1990s, many companies claimed that they applied Hammer’s approach to lay off a large number of workers to reduce costs. The industry was in a turmoil which prompted Dr. Hammer to start his last book “Reengineering Management” where we wrote: “If company owners do not seriously change their way of thinking and left most management jobs intact than they will destroy the very structure of their own company. Change must starts at the top with new thinking and new way to do business.” Despite his pledge, many companies ignored it and continue to operate the same way they did before by reducing workers instead of managers to reduce costs. However, with globalization and business competition happens at a global scale rather than local scale, the number of these “Refuse to change” companies are disappearing fast.
Re-engineering has been implemented with considerable success by some companies. The most successful is Apple Company. When Steve Jobs returned to Apple at the time the company was on the verge of bankruptcy, he began by reviewing every processes in the development of Apple products. By completely re-engineered its new-product process and eliminated unprofitable products, Steve Jobs could focus on “innovation” product such as the iPod, iPhone, and iPad then re-engineering the company to be the largest and most successful company in the world today. When Mr. Jobs returned to Apple, its stock was values at $9 dollars. By the time of his death, the stock was valued at $ 510 dollars and could go higher. A Wall Street business analyst wrote: “What Apple did was not new. The idea of having a defined and innovate process is well known for many years. However what they did was that they followed it to the extreme by eliminate every flaws, every inefficiency, and every small mistakes. Since everything is controlled by effective information system, from his office Mr. Jobs can watch almost everything happen in his company. By allowing him to look at every process in details and by having all employees trained to follow the defined process, they can build the best products in the shortest time possible, and still have the highest quality than their competitors.”
Since the success of Apple and Toyota, many people begin to talk about the concept of “re-engineering” as it is a new thing. Some schools began to offer Information System Management (ISM) in their program. In this fast changing world, people often forget thing quickly that business process reengineering is not new. It was proposed in the 1990s. However, it is still difficult to implement it even today. Many companies are still reluctant to adopt it. During an interview with the Wall Street Journal, a manager admitted: “It is a good idea; it works well somewhere but not in my company. It allows the owner to know more about what happen in the company. It allows the owner to identify flaws. It allows workers to see the data and make decisions to correct mistakes quickly. It reveals everything people do and it measures everything by computers. It is very efficient but as managers we cannot allow that to happen. What will happen to us?
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
