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CHAPTER 8 Business Process Reengineering This chapter examines business process reengineering and provides concrete examples of how the process is implemented: rethinking, redesigning , and reward. An Overview of Reengineering Reengineering the Corporation (Hammer and Champy 1993) may be the most influential management book in the last half-century. 1 Reengineering , or business process reengineering (BPR) as it is also known, seeks to transform radically how business is conducted. Unlike other contemporary management fads promising incremental change and improvement, BPR seeks quantum enhancements (greater than 50 percent and as much as 2,000 percent) in worker productivity. It has achieved notable success worldwide. Reengineering is both a philosophy and a management principle. Its adherents display messianic fervor in exhorting managers to see the weakness in two accepted management axioms: 1. work should be deconstructed into small activities assigned to individual workers 2. layers of management should oversee and direct everything Reengineering adherents believe that these principles lead to • higher costs • lower quality • reduced innovation • lower profits The central idea of BPR is to devise an escape from these axioms. 291 292 Principles of Corporate Renewal "How did work become so flawed?" To answer this question Hammer and Champy cite a worldview in which the development of modern business practices has followed a three-step evolutionary path.2 First, in 1776 the renowned economist Adam Smith observed in The Wealth of Nations that production efficiency is gained by separating work into simple tasks and assigning different persons to accomplish each task. On the factory floor, for example, workers are responsible not for building an entire car but repetitively for screwing bolts into door frames or putting fenders on the frames. Application of Smith's "division of labor" theory yielded spectacular productivity gains throughout the Industrial Revolution. Those gains encouraged innovation in machine technology, promoting increased capital investment and higher rates of capital utilization . As a result, the worker became secondary to the machine in the production process. Second, in the 1930s, the practice of management was itself revolutionized . At that time, corporations were attempting to monopolize industries by using economies of large-scale production to lower unit costs. With rising production, the size and complexity of companies also grew. Alfred Sloan, chairman of General Motors from 1937 to 1956, realized that management practices were impeding the goal of meeting an exploding demand for economical automobiles. He chose to reinvent management. Like Adam Smith, Sloan's breakthrough was specialization , but he focused on administrators instead of production workers. General Motors was a sprawling company. Sloan modularized it so that each product and part was manufactured in a separate factory supervised by an engineer. A small cadre of financial managers controlled each plant using production and financial reports. Other managers, further up the pyramid, directed groups of plants and corporate functions such as marketing or product development. Sloan had created the modern corporation: a web of bureaucracies with numerous specialists in discrete areas like finance, accounting, marketing, sales, and operations . Other companies imitated Sloan's paradigm. On the positive side, this approach enabled companies to manage complex and expanding production processes. On the negative side, corporations became hierarchically organized, with senior managers detached from customers. These two innovations compartmentalized work, leaving workers to perform simple tasks and managers to oversee small activities. The third evolutionary step created the profession of planners to coordinate far-flung enterprises. Planners employ scenarios and simulations to guide the company's future, despite their unfamiliarity with products or customers. Following this final innovation, work fit into one of three categories: Business Process Reengineering 293 • work comprised of repetitive tasks, • work managing a small part of a large enterprise • work planning an organization from afar This system flourished in the postwar decades, buoyed by worldwide supply shortages and rising product demand. Then supply and demand patterns underwent profound changes, upsetting the status quo. The decade of the 1990s - with shortened product life cycles, maturing markets, and intensified worldwide competition - has created new challenges. Leading companies have faltered, while companies that once followed the leaders have disappeared. Corporate meltdowns are not a new phenomenon; what is new is how every company suddenly is at risk. Companies have sought panaceas from various innovations in management practices such as • total quality management • rightsizing • just-in-time inventory control • continuous product innovation • automation • product-customer alignment Each idea attacks specific problems with narrow solutions. Reengineering promises a total business redesign. Companies are motivated to reengineer their processes (the multistep routine that yields a product...

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