If a company attaches sensors to cattle so it can automate collecting information about livestock health, fertility, and nutrition, is that business process re-engineering (BPR)? It depends.
If this optimizes data collection but does not change the process itself, then it’s a business process improvement strategy instead of business process reengineering.
What Is Business Process Reengineering?
Michael Hammer originated the concept of business process reengineering in 1990. He claimed business organizations shouldn’t merely automate and speed up outdated processes. Instead, they should obliterate and redesign these processes to achieve dramatic performance improvements.
Thus, process reengineering goes beyond looking at a business process and asking how it can be sped up, automated, or improved. Instead, it is rethinking process validity and redesigning it from the ground up so it can deliver significantly better results.
In his 1990 magazine article, Hammer put forward as an example the way Ford radically changed its accounts payable business process to achieve a 75% reduction in its accounts payable department headcount.
The Case of Ford
The Ford accounts payable department for North America employed 500 people, and Ford wanted the department downsized to 400. When it looked at Mazda, however, it saw its Japanese competitor’s accounts payable department operated with only five people.
Ford realized its accounts payable department was bloated, so it looked at the department processes to understand why.
It found out that the accounts payable department needed a lot of clerks because it had to reconcile records from three different sources:
- The purchase orders from the purchasing department
- The receiving documents from material control
- The invoices from different vendors
Whenever there was a mismatch among these records, accounts payable clerks had to spend considerable person-hours tracking down the source of the mismatch.
Ford could have opted for speeding up the process of investigating mismatches through better tools and improved workflows. However, the company did not do that. Instead, it looked at its business processes and decided to redesign them.
Ford set up an online database and instituted new workflows. When the purchasing department placed an order, it entered the purchase order information into the online database. When material control received the purchased parts, it checked the database and marked the corresponding purchase order as received.
Computer software then checked if the part number, unit of measure, and supplier code matched. If they did, the system automatically prepared the check for the vendor. All the accounts payable department had to do was send out the payment.
As a result of this reengineered process, Ford reduced its accounts payable department headcount by 75%.
Indeed, business process reengineering does not merely involve optimizing an existing process. It is redesigning it from scratch to achieve dramatic results — a 75% headcount size reduction in Ford’s case.
Business Process Reengineering Steps and Tips
The following are the general steps to reengineering business processes.
1. Map Your Current Business Model: The As-Is Model
How are you currently doing things? Map your current business processes to find out.
The best way to do this is to visualize your current business model — i.e., how your business currently creates value for its customers and generates profits for its stakeholders. The common types of business models include retailer, manufacturer, and fee-for-service.
Tip: Even if you are focused on a single objective — e.g., headcount reduction in accounts payable for Ford — you must look at all your interrelated and interconnected processes. Mapping your business processes will help you more than concentrating on a single or a handful of processes.
In Ford’s case, the interrelated processes included how the purchasing department created purchase orders, material control created receiving documents, and vendors sent invoices. These processes occurred externally and apart from the accounts payable department’s process of reconciling records from all three parties.
However, all these had to be changed (the purchasing department no longer sent purchase orders to accounts payable, the material control department no longer sent receiving documents, and the vendors no longer sent invoices) to downsize the accounts payable department.
2. Map the Ideal Business Model: The To-Be Model
What is the ideal result and way of doing things? At this point, you should design a conceptual framework of how you want things to be for your company.
Tip: Seek help from business consultants with extensive business modeling and BPR experience to ensure you can do this and the preceding step correctly.
3. Perform a Gap Analysis
Systematically compare the current business model drawn in the first step (as-is model) to the conceptual business model outlined in the second step (to-be model). This will tell you which business processes you need to redesign.
Tip: You can use this gap analysis step to identify and validate strategic transformational opportunities for your organization.
4. Identify the Processes That Require Reengineering
At this point, look at your business processes to identify those that, in Michael Hammer’s words, must be “obliterated” to accomplish significantly improved efficiency, performance, and cost reduction, among other things.
5. Create a BPR Task Force
After identifying the processes that must be redesigned, form a team that will be responsible for the reengineering process from start to finish.
Tip: Engage the services of a BPR consulting firm to lead your BPR charge. Key members of your organization can still be part of the BPR team. However, experienced BPR consultants should ideally take the leadership or advisory role.
6. Redesign Your Processes
Now that you have identified the processes you must reengineer, redesign them so they will take you from your as-is state to your desired to-be state.
7. Operationalize New Processes
Take your redesigned processes, create new standard operating procedures (SOPs) for the new workflows, communicate these new SOPs to your people, and train them to work according to the new processes.
For instance, if your reengineered process requires the eradication of data silos through enterprise resource planning (ERP), make sure to test and implement the prerequisite ERP system correctly.
Additionally, ensure that your people know how to use and interact with your ERP (and procedures are in place to enforce correct ERP usage) before rolling it out for implementation.
Tip: It is vital to convert designed processes to something operational. Otherwise, your people will be unable to transition from the old approach to the new one. If you’re implementing new technologies like ERP, you must seek the help of an IT project advisory company.
8. Roll Out and Implement
After developing and thoroughly testing your new processes (and their component technologies, systems, and SOPs), you can now roll them out and reap the benefits.
Transform Your Operations Through BPR
Are your existing business processes the best way to do business?
Map out your current processes and find out. You can then get rid of outdated and inefficient processes and replace them with new ones. For best results, seek the guidance of experienced business process reengineering consultants.
Affility Consulting is a comprehensive advisory services firm with more than 60 person-years of consulting experience. Contact us to start your business transformation.