You are on page 1of 7

UNIT 1

DEFINITION OF REENGINEERING
Reengineering means to disregard all the assumptions and traditions of the way business has
always been done, and instead develop a new, process-centered business organization that
achieves a quantum leap forward in performance.

To achieve reengineering success, a fresh perspective and approach is required. A clean sheet of
paper is taken and, given what is currently known about customers and their preferences, a new
organization is developed which will optimize the process of creating satisfied customers.
Reengineering is the process by which the organization that exists today is retired and the
optimal version of the new organization is constructed.

Reengineering is the opportunity to develop the rules by which business in the future will be
conducted rather than being forced to operate by the rules imposed by someone else. As such,
reengineering underpins every attempt to seize and maintain a true competitive advantage.

The Reengineering Concept

Reengineering is defined as the fundamental rethink and radical redesign of business processes to
generate dramatic improvements in critical performance measures -- such as cost, quality, service
and speed.

In practice, reengineering means to start over with a clean sheet of paper and rebuild the business
better.

Supporting Ideas

To succeed in today’s global economy, corporations must have organizational structures and
business processes that:
1. Are fast
2. Deliver high quality consistently.
3. Are flexible.
4. Are low cost.
Traditional businesses are unlikely to be able to deliver on these requirements because of the
way business management has evolved. The four key stages in the evolution of business
management have been:

Stage 1 -- 1776
Adam Smith published The Wealth of Nations. In this, he suggested the specialization of labor as
a way for workers to achieve greater productivity. Smith’s ideas suggested efficiency could best
be achieved by breaking large jobs down into small tasks which could be performed repetitively.

Stage 2 -- 1820s
The railroad companies introduced bureaucracies to avoid collisions on single-track lines --
formal operating procedures, centralized management and a rule for every contingency.
This was the forerunner of the command-and-control system still in use today -- where there are
workers and supervisors to keep things organized.

Stage 3 -- Early 1900s


Henry Ford introduced the assembly line – workers performed one tiny step in a complex
process where the work is brought to the worker rather than the other way around -- while Alfred
Sloan created small, decentralized management teams for GM so that huge, sprawling operations
could be managed efficiently.

Stage 4 -- The 1945 -- 1960 Era


The hierarchical or pyramid organizational structure became popular as the best way to match
production capacity and demand for mass produced consumer goods. Functional middle
managers were added to provide control and management.

These principles were all appropriate for their times, but in today’s environment, they inevitably
result in:
1. Delay and errors.
2. Rigidity.
3. High overhead costs.

The reality is corporations cannot move into the new competitive environment by adapting the
old management methods – a complete and sweeping redesign is called for. Reengineering
delivers those changes.
The key rhetorical question of reengineering is:

‘‘If I were re-creating this company today, given what I know and the current level of
technology, what would it look like?’’

Inevitably, the answer to that question will have four key elements:

1. A focus on fundamentals.
Addressing the issue of precisely what it is the corporation does, why is it done the present way
and what are the tacit rules and assumptions embedded in present practices?
Reengineering ignores ‘‘what is’’ and concentrates on ‘‘what should be’’.
2. A radical redesign element.
Reengineering is about reinventing the business – not making superficial changes or marginal
enhancements to the old ways of doing things.

3. The potential for dramatic results.


Reengineering leads to quantum leaps in performance – not incremental improvements.
4. A business process orientation.
Reengineering revolves around business processes – not tasks, job descriptions, people or
structures. A business process takes an input or inputs and generates an output which is of value
to the customer. A business process only works if it generates added value, not internal activity.

Generally speaking, three types of companies undertake intensive reengineering programs:


 Companies that find themselves in deep competitive trouble-- and who often require an order of
magnitude improvement somewhere in their operations to be able to compete with others in their
field.
 Companies with managers who can see problems arising a little further down the road they are
traveling on -- and who want to begin reengineering before all competitive advantages they
possess evaporate.
 Companies with managers who are ambitious and aggressive-- who see reengineering as a way
to position the company to extend their lead over their competitors.

The reengineering concept:


 Should not be confused with automation -- since doing the wrong things more efficiently will
make few, if any, improvements to a business.
 Is not restructuring or downsizing -- since reengineering seeks to achieve more with less rather
than scaling back what’s being done.
 Is different from an attempt to ‘‘flatten’’ an organization – since the problems facing companies
are deeper, process based rather than superficial, organizational problems
 Allows fragmented processes to be brought together --thereby eliminating the need for a business
bureaucracy.
 Several jobs are combined into one. Reengineering tends to reverse the assembly line approach.
 Instead of having many people involved, none of whom can be held accountable, many
reengineering programs combine process steps and make a team directly responsible for creating
a satisfied customer. That eliminates the errors, delays and inefficiencies of hand-offs.
 Decision making falls to the workers, not the managers. When a business process is
reengineered, the responsibility for making decisions often becomes an integral part of the
process itself rather than being separated. The advantages of this are:
 Fewer delays.
 Lowering of overheads and fixed costs.
 Better response to customers.
 Workers are empowered to create value.

 The work is performed where it makes most sense. In industrial-age organizations, the work
usually had to physically travel to where each specialist was located --creating loads of
overheads keeping track of things and fitting all the pieces together. When a business reengineers
its processes, these functions can be shifted around the organizational boundaries to become
more efficient. Inevitably, doing so simplifies management procedures and reduces drag on the
company.
 Checks and controls are reduced or eliminated. When processes are reengineered, checks and
controls are put in only where they make economic sense. In fact, the majority of reengineered
processes tend to have controls that aggregate patterns rather than seek permission for individual
circumstances. That way, problems that are developing can
be identified and dealt with early.

 Single points of contact -- case managers – assume responsibility for the results.
 In many industrial-age companies, the customer had to interact with a number of people to deal
with the company. That caused confusion and frustration -- simply because bringing each new
person ‘‘up to speed’’ on the specifics of a situation was a major exercise in and of itself. Most
reengineering programs eliminate that problem altogether by creating a one person contact point
-- frequently designated as the case manager -- to act on behalf of the customer and follow the
entire transaction from start to finish. The case manager integrates processes and simplify things
for customers.
 Companies enjoy the benefits of centralized purchasing power and decentralized operations.
Many companies that have reengineered their processes end up combining the benefits of both
decentralization and centralization. In other words, business units tend to operate as if
autonomous (giving them greater flexibility and market responsiveness) while at the same time
enjoying the economies of scale (purchasing power and pooling of key information)
centralization delivers.
3C's Model
The reality that organizations have to confront, however, is that the old ways of doing business—
the division of labor around which companies has been organized since Adam Smith first
articulated the principle—simply don’t work anymore. Suddenly, the world is a different place.
Our here-and-now crisis of competitiveness is not the result of a temporary economic downturn
or a low point in the business cycle. Indeed, we can no longer even count on a predictable
Business cycle—prosperity, followed by recession, followed by renewed prosperity—as we once
did. In today’s environment, nothing is constant or predictable—not market growth, customer
demand, product life cycles, the rate of technological change, or the nature of competition. Adam
Smith’s world and its way of doing business are yesterday’s paradigm.
Three forces, separately and in combination, are driving today’s companies deeper and deeper
into territory that most of their executives and managers find frighteningly unfamiliar. We call
these forces the three Cs: customers, competition, and change. Their names are hardly new, but
the characteristics of the three Cs are remarkably different from what they were in the past.

• Customers take charge


Since the early 1980s, in the United States and other developed countries, the dominant force in
the seller-customer relationship has shifted. Sellers no longer have the upper hand; customers do.
Customers now tell suppliers what they want, when they want it, how they want it, and what they
will pay. This new situation is unsettling to companies that have known life only in the mass
market.
In reality, a mass market never existed, but for most of the twentieth century the idea of the mass
market provided manufacturers and service providers—from Henry Ford’s car company to
Thomas Watson’s computer company—with the useful fiction that their customers were more or
less alike. If that was true, or if buyers behaved as if it were true, then companies could assume
that a standard product or service—a black car or a big blue computer—would satisfy most of
them. Even those who weren’t satisfied would buy what was offered, because they had little
choice. Mass market suppliers in the United States had relatively few competitors, and most of
them offered very similar products and services. In fact, most consumers weren’t dissatisfied.
They didn’t know that anything better or different was available.
Consumer expectations soared in the United States when competitors— many of them
Japanese—burst upon the market with lower prices combined with higher-quality goods. Then
the Japanese introduced new products that established American producers had not had time to
bring to market—or maybe hadn’t even thought of yet. What’s more, the Japanese did it all with
levels of service that traditional companies could not match. This was mass production plus—
plus quality, price, selection, and service.

In short, in place of the expanding mass markets of the past, companies today have customers—
business customers and individual consumers—who know what they want, what they want to
pay for it, and how to get it on the terms they demand. Customers such as these don’t need to
deal with companies that don’t understand and appreciate this startling change in the customer-
buyer relationship.

• Competition intensifies
The second C is competition. It used to be so simple: The company that could get to market with
an acceptable product or service at the best price would get a sale. Now, not only does more
competition exist, but there are many different kinds.
Niche competitors have changed the face of practically every market. Similar goods sell in
different markets on entirely disparate competitive bases: in one market on the basis of price, in
another on selection, somewhere else on quality, and elsewhere on service before, during, or
after the sale. With trade barriers falling, no company’s national turf is protected from overseas
competition. When the Japanese—or Germans, French, Koreans, Taiwanese, and so forth—are
free to compete in the same markets, just one superior performer can raise the competitive
threshold for companies around the world. Caterpillar competes with Komatsu, DuPont with
Hoechst, Chase Manhattan with Barclay’s. Good performers drive out the inferior, because the
lowest price, the highest quality, the best service available from any one of them soon becomes
the standard for all competitors. Adequate is no longer good enough. If a company can’t stand
shoulder to shoulder with the world’s best in a competitive category, it soon has no place to stand
at all.
Start-up companies that carry no organizational baggage and are not constrained by their
histories can enter a market with the next product or service generation before existing
companies can even recoup their development costs on the last one. Big is no longer
impregnable, and every established company today needs to post a lookout for start-ups—those
that are brand-new and those that have been around for a while but still operate on their
founders’ principles. By that definition, Sun Microsystems is still a start-up, and so is Wal-Mart.
Sun’s workstation innovation changed the course of history for every computer maker in the
world. Wal-Mart reinvented retailing.
Start-ups do not play by the rules. They write new rules about how to run a business. Wal-Mart
did not create itself in the image of Sears. Unburdened by Sears’s past, it conceived new ways of
working that produce better results. Sears’s apparent assets lots of stores employing well trained
salespeople, established supplier relationships, smoothly tuned operating and administrative
systems have turned into liabilities in that they cannot produce the results that Wal-Mart has
established as the new competitive standards.

• Change becomes constant


Change is the third C. We already know that customers and competition have changed, but so,
too, has the nature of change itself. Foremost, change has become both pervasive and persistent.
It is the norm.
Not long ago, for example, life insurance companies offered only two products: term and whole
life. Today, they supply a constantly changing smorgasbord of products, and the competitive
pressure on insurance companies to create new products is constantly increasing. Moreover, the
pace of change has accelerated. With globalization of the economy, companies face a greater
number of competitors, each one of which may introduce product and service innovations to the
market. The rapidity of technological change also promotes innovation. Product life cycles have
gone from years to months. Ford produced the Model T for an entire human generation. The life
cycle of a computer product introduced today might stretch to two years, but it is more likely six
to nine months. A company in the pension business recently developed a service to take
advantage of a quirk in the tax laws and interest rates. Its anticipated market life was exactly
three months. Coming to this market late by just thirty days would have cut the company’s
selling time for the service by a third.
The three Cs—customers, competition, and change—have created a new world for business, and
it is becoming increasingly apparent that organizations designed to operate in one environment
cannot be fixed to work well in another. Companies created to thrive on mass production,
stability, and growth can’t be fixed to succeed in a world where customers, competition, and
change demand flexibility and quick response.
Inflexibility, unresponsiveness, the absence of customer focus, an obsession with activity rather
than result, bureaucratic paralysis, lack of innovation, high overhead—these are the legacies of
past business practices. These characteristics are not new; they have not suddenly appeared.
They have been present all along. It is just that until recently, companies didn’t have to worry
much about them. If costs were high, they could be passed on to customers. If customers were
dissatisfied, they had nowhere else to turn. If new products were slow in coming, customers
would wait. The important managerial ob was to manage growth, and the rest didn’t matter. Now
That growth has flattened out, the rest matters a great deal.
The problem is that we are doing business in the twenty-first century with companies designed
during the nineteenth century to work well in the twentieth.
“We need something entirely different”.

You might also like