BPRL1

Business Process
Reengineering
&
Bench Marking
www.simsr.somaiya.edu
CEOs
Statements
Organization Flexible enough to
adjust to changing Market
Conditions
Lean enough to beat any
competitors price
Innovative enough to keep its
products & services technological
fresh
Dedicated enough to deliver max.
quality & customer service
Cont.
Want organizations to be
Lean
Nimble
Flexible
Responsive
Competitive
Innovative
Efficient
Customer Focused
Profitable
Then Why
So many businesses are
Bloated
Clumsy
Rigid
Sluggish
Non competitive
Uncreative
Inefficient
Disdainful of customers needs
Losing Money
Answer
How do these companies do their
work ?
&
Why do they do it that way ?
Examples
Goal :Filling Customer Orders Quickly

To achieve this formed a multi-tiered Distribution
System
Factory > CDC > RDC > Customer(regional and central
distribution centre)
In one case RDC located in same building as CDC
From CDC to RDC takes
11days:
RDC to notify CDC
1 day
CDC to check pick & dispatch
5 days
RDC to officially receive , shelve, pick & pack
5 days
Reason
RDC rated by time to respond
customer order while
CDC is not.
CDC judged on
#Inventory Cost
#Inventory Turns
# Labour Costs
Result
RDC does not order on CDC
Overnight airlift from other RDC
Airway bills run into millions of
dollars
Additionally
Each RDC has a unit to track the
inventory of other RDCs
Some goods moved & handled
more times than good sense
dictates
CDC & RDC doing their job but
overall system does not work
Efficiency of a companys part is at
the expense of the efficiency of
the whole
Another
Example
An aircraft of US Air grounded one afternoon for repair

at Airport Airy
Mechanic capable of repairing located at Pittsburg
airport which is nearest to Airy
Airport manager of Pittsburgh refused to send
mechanic that afternoon because he would stay at
hotel overnight & hotel bill be debited in Pittsburg
account
Mechanic dispatched next day morning to fix problem &
return the same day
Multimillion dollar worth aircraft remained idle , airline
lost thousands of $ in revenue but Pittsburg airport
managers budget not hit by $100 hotel bill
Is this an example of
inefficiency ?
Pittsburg manager was neither
foolish nor careless
He was doing what he was
supposed to do i.e. controlling &
minimizing expenses
Whenever co-operation
/coordination of several different
departments is required ; it is a
source of trouble
Another Example
Return of unsold goods involves 13 different
departments
Receiving
Warehousing
Inventory updates
Promotions check price at which it was sold
Sales accounting adjusts commissions
And so on
No single department /individual is responsible
For each dept. it is a low priority distraction
Mistakes happen
Returned good ends up lost
Cont.
Company pays sales commission on unsold
goods
Retailer does not get credit & gets angry
Nullifies efforts of sales & marketing
Unhappy retailers less likely to promote new
products of the manufacturer
They delay paying bills & pay what they think
they owe after deducting value of returns
This throws mfg. accounts deptt. into turmoil
because retailer cheque does not match
invoice
Eventually manufacturer simply gives up
unable to trace what really happened
Result
Lost revenue runs into nine
figurers
As a result
Management attempts to
tighten
the disjointed return
process
&
New problems crop up
Another Example of Impact on

Bottom line
A Pharma. Company
New drug tried on 30 patients who took for 1 week .
Info. Collection took 2 years
Company scientist took 4 months developing study &
specifying kind of data to be collected
Designing study
2 weeks
Getting reviewed 14 weeks
Physicians scheduling /conducting interviews to recruit
other doctors who would identify appropriate patients &
administer the trial drug
2 Months
Securing permissions from all hospitals involved took 1
Month
Physician was paid in advance & hence had no interest
Collecting forms from doctors took 2 Months
Cont.
Data entry detected errors in 90%
Forms
Back to Protocol designer to study
Administrator to Physician who tried to
correct the mistakes
Company lost 2 years of profit worth
millions of $
None responsible for getting field study
done
Even when there is a major impact on
the bottom line no one is in charge
What is the problem

?
Are the above examples
exceptions ?
Are the workers lazy ?
Are the managements inept ?
No
The Problem lies somewhere else
20th Century
American entrepreneurs led the world in creating

business organizations that set the pace for
Product Development ; Production ; Distribution
thereby creating Highest Standards of living in the
world
But
Some companies & their descendents no longer
perform well
Because
World has changed beyond their capacity to adjust or
evolve
Principles on which they were organized

were superbly suited to conditions of an
earlier era but they can stretch only
What has changed

?
Advanced technologies
Boundaries disappearance among
national markets
Altered expectations of customers
who have more goals & methods
Basic Principle of Classical
Organization
is
OBSOLETE
What Then?
Renewing Competitive
Capabilities
is
Not a Question of
Working Hard
But
Of
Learning to Work Differently
An Unpleasant
Reality
Companies & Employees must
Unlearn
Many
of
Principles & Techniques
That
Brought
Success for so Long
Trace back to
1776
Most companies today can trace
back
to
Pin Factory
Described
by
Adam Smith
in
Wealth of Nations
Principle of Division of
Labour
Workers each performing single step can
make far more as compared to one making
whole
Steps involve
Draw wire
Straighten
Cut
Point
Grind at top
Head - 2 operations
Put it on
Whiten
Packing
Output
10 workmen make > 48000 pcs ./day
If each trying to make whole ; can not
make more than 20 pcs. Or perhaps
none
Division of labour increased
productivity by a factor of hundreds
due
Increase of Dexterity of Workmen
Saving of time lost in passing from one
operation to another
Invention of machines
Today
All organizations built around
Smiths Central Idea i.e.
Division/Specialization of
Labour
Consequently
Fragmentation of Work
Workers never complete a job but
perform piece meal tasks
U.S. Companies
Were best in the world
Manufacturing Facilities sprouted
around the country
Growth occurred due to innovative
changes in shipping goods
Built railroad which extended &
accelerated economic development
It is the railroad companies who
invented the modern business
bureaucracy
Railroad
companies
Formalized operating procedures

Organizational Structure
Mechanisms
Role of Contingency
Lines of authority
Reporting
Management
Principles
Programmed workers to act
according to rules & make one
track system predictable
Command & Control Systems even
today embody same principles
railroads introduced 150 years ago
Next Large
Evolutionary Step
For
Developing todays Business Organization
Came In
Early Twentieth Century
From
Two Automobile Pioneers
^ Henry Ford
^ Alfred Sloan
Remembering Henry
Ford
Ford improved on Smiths concept
Instead of having skilled assemblers
build entire car Ford reduced to
installing a part in a prescribed manner
Initially workers walked from one
assembly stand to the next taking
themselves to work
Innovation for which Ford is best
remembered; brought work to the
worker
Simplicity led to
Complexity
Assembly broken into simple
uncomplicated tasks
But
Made process of coordinating
people & combining the results of
their tasks into a whole car far
more complex
Management
System
Alfred Sloan created prototype of
Management System which Fords
factory System demanded
Neither Henry Ford nor William Durant
ever learnt as to how to manage
sprawling organizations
Sloan took over from Durant & made
system of Ford complete and this
system is today called
Mass
Production
Decentralization
Sloan applied Smiths principle of
division of labour to Management
as Ford had applied to Production
Sloan created smaller
decentralized divisions that
managers could oversee from
corporate head quarters simply by
monitoring
Production & Financial Numbers
Corporate executives did not need

specific expertise in
manufacturing/engineering but needed
financial expertise
Also this solved the problem that
prevented other companies from
expanding
Financial/Marketing complemented
Engineering Professionals
Sloan firmly established division of
Professional labour in parallel with
End of World War

II
Final Evolutionary step came by end of WW II
& 1960which was the period of Enormous
Economic Expansion
Elaborate Planning Exercises led Business
wanting to have
Capital to be allocated
Returns expected from operating managers
Large staff of corporate controllers , planners ,
auditors ,acted as eyes & ears of
management
This organization model spread to Europe &
Japan
Post World War II

Heavy Demand /Accelerating growth
suited post world war times perfectly
Market accepted whatever was offered
Pyramidal structure suited high growth
environment because it was scalable
In 1960 white collar jobs were further
broken down due new office technology
became available
These could be mechanized or
automated
Complications
As tasks grew, overall process became
increasingly complicated
No. of people in the middle of
organization was one price paid for
benefit of fragmenting
Another disadvantage was increasing
distance between senior management
& consumers
How customers responded was
measured only in nos. & not in faces
Reality
These are roots of todays corporation
Principles forged by necessity on which
todays companies have been
structured
Old ways of doing business simply do
not work any more
Here & now onwards crisis of
competitiveness is not a temporary
phenomenon
Unpredictability
In todays world nothing is constant or
predictable
Market Growth
Customer Demand
Product Life Cycle
Rate of technological change
Nature of competition
Adam Smiths world & its way of doing
business are yesterdays paradigm
Three Forces
Separately or in combination are
driving companies deeper & deeper
into territory that most of their
executives & managers find
frighteningly unfamiliar
Three Cs
Customer
Competition
Change
Names familiar but characteristics are
different
Customers Take
Charge
From early 1980 dominant force in seller
customer relationship has changed
Sellers no longer have an upper hand
What , When , How they will pay
This is unsettling for companies who have
operated in mass markets
In reality Mass Markets never existed . The
truth is there was no choice
In US relatively few competitors & most of
them offered similar products
Customers Have
Choice
Demand is tailor made
No the customer ; this
customer
Mass markets broken into pieces
some as small as a single
customer
Individually & in combination a
number of factors contributed to
shifting the balance of market
power from producer to customer
Customer
Expectation
Soured in US due Japanese
competitors who supplied market
with lower prices & higher quality
Fast introduction of new products
& unmatchable service
Mass production +Quality , Price ,
Selection & Service
Service Sector
Consumer demanded more
Data base allow service providers
& retailers to track consumers with
their preferences & hence a new
foundation for competitiveness
was laid
Consumers Expectations Raised
Consolidation
Some mega dealers replacing
many
Mall sized discounters emptied
Main Street Store Fronts
Changed equation between Buyer &

Seller
Backward
Integration
This threat shifted power from
seller to buyer
Do it my way
or
I will do it myself
Easy to learn Desk top Publishing
gave the chice
Mass Market
Mentality
Companies who grew with above mentality
had to realize
Each one counts
Movie Field of dreams if you build they will
buy
Goods shortage no longer exists
More Producers
Developed countries have low population
growth
Many Product Markets Matured
Industry in Replacement Mode
Consumers wield Power & hence can be
choosy
Long & Short of the

Story
Consumers What they want ,
What to pay , How to get on terms
Do not want to deal with
companies who do not appreciate
& understand this startling in
customer buyer relationship
The second C Competition
Earlier companies could go to market with an

acceptable product /service at best price & would get a
sale
Now not only more competition but many different
kinds
Niche competitors change the market
Similar goods sell in different market on different basis
Trade barriers falling & no national turf is protected
One superior performer raises competitive threshold
for the market around the world
Good performer chases out inferior
Adequate is no longer good enough
Start up
Companies
Carry no organizational baggage & not
constrained by history
Enter market faster with new products
Big is no longer impregnable
Sun Micro System is still a start up & so is Wal
Mart
Work station Innovation
Wal Mart reinvented retailing
Start up do not play by rules , they write
new rules
Unburdened they create new ways of working
that produce better results
Third C Change
Technology changes nature of competition

In retailing Wal-Mart & P & G could merge their
inventory /distribution which is mutually beneficial
In after sales service Otis handles task of managing
93000 elevators / escalator in North America round the
clock
Limits of possible changed thereby raising customer
expectations for all the companies in market
Change becomes constant
Change has become pervasive & persistent
It is the norm
Life Insurance companies offered two products Term &
Life
Today they supply constantly changing new products
Cont.
Pace of change accelerated

Rapidity of technological change promotes innovation
Product life cycle reduced from years to months
Ford produced the model T for entire human generation
Life cycle of computers reduced to 6 months
Pension products life reduced to 3 months
Product / Service life cycles diminished
Time available to develop / introduce new products
have diminished substantially
Move fast or wont move
Executive
Perception
Think companies equipped with effective
change sensing radars
Problem is they hear what they expect
Survey gives good news & market share goes
down
Companys sloppy order fulfillment process
annoying & hence retailers reduce shelf space
Neither Brand manager nor anyone else has
broad enough perspective to deal with the
problem
The changes that put companies out of
business are those that happen outside the
light of its current expectation
New World of
Business
Companies designed to operate in
one environment cannot be fixed
to work well in another
Companies created to thrive on
Mass Production , Stability &
Growth cannot be fixed to
succeed in a world of 3 Cs
Demand is Flexibility & Quick
Response
Blame Game
Some executives blame :
Closed foreign markets
Low cost of capital
Predatory pricing policy by foreign companies
subsidized by their govts.
Federal government
Mishandling of economy by govt.
Regulations
Poor husbandry of natural & human resources
Unions poorly educated
Unmotivated workers
Is This True ?
If so then all should decline
But
Sears going down & Wal-Mart
moving up
GM declining & Honda is shining
Insurance Industry looking south &
Progressive Insurance is moving
north
Right Products /Service

Solution?
Products have a limited life
Not products but processes that
create products bring long term
success
Good products do not make
winners ; Winners make good
products
Different Strategy a
Solution ?
Sell one division

Buy another
Change markets
Get into different business
Do only distribution
All this prevents them from
making changes in basic work
they actually do
Management
Deficiencies
Some feel if managed differently & better they
would thrive ; let us look at Fads of 3 decades
MBO
Zero Based Budgeting
Value Chain Analysis
Decentralization
Quality Circles
Excellence
Restructuring
Portfolio Management
One Minute Managing
Have not enabled companies to sustain Competitive

Performance
Automation
Answer ?
Jobs get done faster but

fundamentally the same job is
being done
No
Fundamental
Improvement
Performance
Profound
Contempt
For daily operations of business
It is not asset portfolio but People
working to Invent , Make , Sell &
provide Service lead to success
If company not succeeding ,it means
their people not doing above as well as
they should
God is in Details
Architect Mies van der Rohe
Real
Diagnosis
Goes to very heart of problem
A company better at Meat &
Potato of its business i.e. inventing
, manufacturing , selling ,
servicing will beat competition in
market place
Winning companies know how to
do their work better
It is as simple & formidable as that
Order Fulfillment
Process
Customer places order & goods
are delivered : a dozen steps
There are some advantages like
^ No need to hire employees with
higher degrees
^ Every one is assigned a specific
responsibility
^ Accountable through bureaucratic
chain of command
Accept Trade Off

Some disadvantages
^ None responsible
^ Process is error prone
^ Each hand off entails queues , batches ,& wait times
^ No service element
^ Complex involving 12 people can not be made
flexible
^ None is empowered to answer a question or solve a
problem
^ Once order enters the process , it might as well be
lost until it emerges at other end
Trying to fix what is wrong by tinkering with

each process piece is the guaranteed bad
performance
What Is the
Solution ?
Not necessary to organize work
around Adam Smiths division of
labour
Task oriented jobs in world of 3Cs
are obsolete
Instead organize around Process
Today none is In charge of
Process
Today Cos. Functional

Silos
Vertical Structures built on narrow
pieces of Process
People look inwards , upwards but
not outwards
Contemporary Performance
Problems that companies
experience are outcome of Process
Fragmentation
Diseconomies of
Scale
Example : For 100 units of work /hour
Co. needs 10 workers + 1 supervisors
For 10 times more output it needs 100
workers+10 supervisors +1 manager
+3 Asst.Managers + 18 in HR +19 in
Long Range planning+22 in Audit +23in
Facilitation & Expediting =196
This is quite opposite of what Adam
Smith had envisioned .Diseconomies
are in O/H.
Humpy Dumpy School of Organizational

Management
Leads to Bureaucratic Proliferation &

Empire building
Hire Kings horses & kings men to
paste the fragmented work back
together again
It is the Glue to hold together who
really work
Direct labour cut down & O/H gone up
Paying more for glue than the real work
Recipe for Trouble
Are These Problems

New ?
No . Inflexibility , Unresponsiveness, Absence of

customer focus , Obsession with activity ,Bureaucratic
Paralysis Lack of Innovation High O/H are legacies of
past business practices
They were present all along but cos. Did not worry
about them
If cost were high pass them on
Product introduction slow , customers will wait
Customers were unhappy but they could not go
anywhere
Job of Manager was to manage growth rest did not
matter
Now growth has flattened & rest matters a great deal
Problem is we are doing business in 21st century with
companies
designed in 19th century to work in 20th
century .

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Business Process

Goal :Filling Customer Orders Quickly

An aircraft of US Air grounded one afternoon for repair

Another Example of Impact on

What is the problem

American entrepreneurs led the world in creating

Principles on which they were organized

What has changed

Formalized operating procedures

Corporate executives did not need

End of World War

Post World War II

Changed equation between Buyer &

Long & Short of the

The second C Competition

Earlier companies could go to market with an

Technology changes nature of competition

Pace of change accelerated

Right Products /Service

Sell one division

One Minute Managing

Have not enabled companies to sustain Competitive

Jobs get done faster but

Accept Trade Off

Trying to fix what is wrong by tinkering with

Today Cos. Functional

Humpy Dumpy School of Organizational

Leads to Bureaucratic Proliferation &

Are These Problems

No . Inflexibility , Unresponsiveness, Absence of

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