process reengineering and the dynamic balance of the organisation

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European Manapmwt journal Vol. 13, No. 1, pp. 52-57, 1995 Copyright 0 1995 Elsevier Science Ltd

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Process Reengineering and the Dynamic Balance of the Organisation [OHN HENDRY, Director of the MBA course, The Judge Institute of Management Studies, and Professorial Fellow of Girton College, University of Cambridge

The idea of process reengineering, or computer- aided process-focused industrial engineering, has taken a firm hold in today’s companies, but the benefits of this approach have often been elusive and even when they have been achieved it is by no means clear that they will be sustainable. In this paper, John Hendry looks critically at the logic underlying both traditional and contemporary industrial engineering approaches and the organisational problems they encounter, with particular attention to the organisation’s ability to develop over time and to respond effectively to exceptional or changing circumstances. The conclusion reached is that reengineering is a necessary component of the drive for business efficiency, but that if it is to be a long-term success three classic dangers, inherent in the industrial engineering approach must be avoided.

Processs Reengineering and the Dynamic Balance of the Organisation Business process redesign, process reengineering, value chain reconfiguration, the new industrial engineering. Call it what you will, the idea of computer-aided, process-focused industrial engineering has taken a firm hold in today’s companies (Stewart, 1993). The benefits of this approach, however, have often been elusive, and even when they have been achieved it is by no means clear that they will be sustainable (Hall et al. 1993). Why should this be? And what is it about organisations and engineering that make their combination at once so attractive and so problematic?

Industrial Engineering and the Logic of Machine-people Although the metaphors have changed over the centuries, the idea of designing or engineering an organisation for maximum efficiency or effectiveness, in the way that one would design and engineer a machine, is scarcely a new one. Indeed it is one of the

remarkable consistencies of organisational life that the creation of wealth has always depended fundamentally upon people acting as machines. Whether in agriculture, manufacturing or services, in ancient, medieval or modern times, both efficiency and effectiveness have relied upon workers doing repetitive tasks with discipline, precision and predictability.

Traditionally these tasks have been physical ones: sowing crops evenly and harvesting them cleanly, spinning and weaving for a regular and unflawed cloth, working metals and preparing chemicals. The most common modern image is that of the assembly line, and the classic applications of industrial engineering were in automobile manufacturing. But the principle applies to administration and services as well as to manufacturing, and to skilled, supervisory and even professional jobs as well as to unskilled or semi-skilled labour. Machine operators and typists, joiners and book- keepers, laboratory technicians, actuaries and auditors all perform best as machine-people. As machines they are reliable and efficient. As humans their propensity to innovate, to think and to depart, accidentally or intentionally, from the scientifically prescribed procedures is a liability resulting in errors, flaws, and delays, in added costs and lower quality.

This is an uncomfortable truth, for most of us cherish our humanity. It is, as we shall see, a partial truth, for there will always be occasions when the person must overrule the machine. But it is a truth nevertheless and, for the entrepreneur seeking business success, or the society wishing to encourage wealth creation, it is an important one which presents two challenges: first, how to maximise the machine potential of the workforce; and second, how to control their unpredictable humanity.

SO long as the tasks concerned were relatively simple, the main emphasis was, historically, on control. Sometimes this control was sought through simple and overt oppression. The galley slave failing to keep time with his oar was whipped until he reformed or lost consciousness. The peasant farmer or, more recently, the factory worker was paid a piece rate so low that

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PROCESS REENGINEERING AND THE DYNAMIC BALANCE OF THE ORGANISATION

machine-like efficiency was the only way to survive. Sometimes more subtle and psychological pressures were used, as an atmosphere was created in which behaviour that departed from the machine norm was seen as socially unacceptable, inadequate, shameful, or even morally wrong.

These types of controls continue to operate today. Unemployment is no longer a matter of life and death, but it is still unpleasant, and in some countries political propaganda has been used to make it feel shameful as well. Most corporate cultures encourage conformity, and while managerial failure is often invisible, and may even be acceptable in a ‘risk-taking’ manager, the machine- person has nowhere to hide: a machine task is a simple task, and if people cannot even do that right they must be totally hopeless - or at least will be made to feel so. However, with the complex tasks characteristic of modern industrial organisations, such controls are no longer sufficient. It is also necessary to design the company’s processes, and the tasks within them, so as to minimise the ownunity for human deviations, while maximising the efficiency of the machine process.

This element of machine design forms the basis of Scientific Management, propounded by Frederick Taylor (1911) in the early years of this century, and of its more modern successors, 0 & M (organisations and methods) and work study. All these approaches to management involve designing the work processes of people as if one were designing a machine, with the people as machine parts or sub-components. The objective is to define the most efficient machine for the particular purposes of the operation, and this involves both a careful and scientifically based sequencing and arranging of tasks and a precise specification and engineering of each individual task so as to eliminate potential sources of variance. A fundamental principle of Taylorism is that responsibility for the organisation of the work should rest with the manager, or engineer of the machine system (and in Taylor’s day, most managers were in fact engineers) and not with the worker. For the worker to be an effective machine- person, the task must leave no scope for human choice.

Within the discourse of business process redesign and the new industrial engineering there is much less talk of limiting or controlling human behaviour, which would sit uneasily with the other current fashions for empowerment and total quality management. Hammer (1990), Davenport (1993), Davenport and Short, (1990) and others talk of engineering processes, not people. But the link with Taylorism is explicit. It is the context of industrial engineering which has changed, not its underlying logic, and that logic continues to be very powerful. In some ways, indeed, it is even more compelling now than it was in the past.

Whereas earlier versions of industrial engineering restricted their attention to efficiency, the new industrial engineering also embraces effectiveness. Porter’s (1985) influential model of the value chain, Peters and

Waterman’s (1982) accounts of corporate excellence and the idea of Total Quality Management have all helped managers focus not only on the costs associated with organisational processes but also on the value generated for customers. From an industrial engineering per- spective, Porter’s (1985) value chain model is particularly powerful, for the value chain is, in effect, an engineering model of the operations of an organisation. The creation of products and services is broken down into processes, subprocesses and individual tasks. Each unit, and each linkage between units is analysed in terms of the costs incurred and value added. With this information a new and better machine can then be designed in which the customer value is maximised, the tasks and processes which do not add value are eliminated, and the costs of those which do are minimised.

Whether value chain reconfiguration and business process redesign are the same thing or not is a much debated point. Proponents of business process redesign will argue that the emphasis of the value chain is still too much on tasks and not outputs - that it starts with a process and seeks to maximise value rather than starting with the value and seeking to minimise process. Proponents of value chain reconfiguration will argue that there is no point in redesigning business processes without looking at their linkages to other processes: it is a reconfiguration of the whole value chain, not just of processes within it, that matters. Whichever side you take, however, the arguments in favour of reengineering are the same.

For many years firms have applied the concepts of industrial engineering to their production processes, but administrative processes, services and goods handling have remained largely untouched. In the decades following the Second World War the 0 & M movement did seek to apply industrial engineering principles to clerical work and administration, using the new data processing technology then becoming available (Hendry, 1987). But the technology was still very limited, and the emphasis was upon the automation and streamlining of existing processes rather than upon any radical rethinking of the processes themselves. At the time, this was all that could be done, for the technological changes then taking place were not such as to impinge upon the paper processes then current. As the technology advanced, however, a curious thing happened. At the same time as radical process in- novations began to become a possibility, 0 & M went out of fashion and the initiative passed from those expert in administrative processes to those expert in information techology itself, in the shape of specialist IT staff, software providers and systems consultancies. The technology advanced but the processes, designed many years ago to meet particular circumstances and a particular business and technological environment, remained the same, even though the circumstances and environment had changed out of all recognition. Where the processes were changed, it was often through the ad hoc addition of bits and pieces, without regard to the whole.

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The result has been a sometimes massive level of inefficiency and ineffectiveness, with the proliferation and continuation of costly processes which add no value. With the advance of information technology, moreover, many of the assumptions on which the original processes were based are no longer applicable. With rapid data transfer and centralised storage we no longer need multiple bits of paper following things around, separate data banks in separate locations, or clerical intermediaries to process information between customers and suppliers.

The message of the new industrial engineering is that in today’s intensely competitive environment this wastefulness is unsustainable. And to eliminate it the disciplines already applied to manufacturing processes must now be applied across all the processes of an organisation. Not only the production line but all the other aspects of the organisation must now be engineered. And with modern information systems we have the technology to do it. Not only is IT critical as the basis of the newly engineered processes; it also provides us with the ability to undertake the redesign, maximising value added and minimising costs over the large range of interdependent variables that enter into a complex administrative system.

there seems to be the greatest scope for improvement and concentrating on those. But as research has shown, the success of process re-engineering is a function of the breadth of process reengineered. Of the 20 cases examined in a study by McKinsey, only 7 produced business unit cost improvements of over 6% - which is the sort of figure companies should be achieving anyway - and in six of these the redesign was comprehensive enough to cover most of the critical activities of a business unit (Hall et al, 1993). Where the processes covered were narrower, the process cost reductions could still be significant, but the overall impact seemed disappointing when set against the investment made in it. This also reflects a more general observation that, even at the process level, the benefits from reengineering have often fallen well short of expectations and failed to justify the costs associated with it.

These results are hardly surprising, but they are a source of concern, especially when we look to the longer term. For it would appear that, for most companies, business process reengineering is not only too expensive to do effectively, but certainly too expensive to do repeatedly, as part of an on-going process. The problems traditionally associated with industrial engineering, however, problems which we might also expect to arise with

The argument is irresistible. When the core technology of administration changes, as it has done with the rapid development of IT, when the commercial environment changes, leading to changes in relative costs and values, or when the strategy of the corporation changes, it must be right to reconfigure the value chain in line with the new circumstances and objectives. The enhancement of value added and the minimisation of costs must be the core objectives of this reconfiguration, with the choice of strategy determining the balances between them. And whether strategies change or not the perpetuation

have often disappointed defensible. But if process reengineering is such a good thing, why are its reported results often so poor, and I expectations and proved costly of blatant inefficiencies cannot be economically

process reengineering, are mainly longer-term ones.

These traditional problems fall into two main classes. First there are problems caused by the limitations of machine-like organisational designs and the temporal fragility of perfectly engineered solutions. Second there are those caused by the fact that people are, after all, human, and not machine components.

The benefits from reengineering

why do so many managers feel uneasy about it?

Flexibility, Responsiveness and Problems with People The main barriers to the implementation of business process reengineering so far identified have been cost and the availability of managerial resources. Re- engineering, which is generally carried out with the help of one of the large consultancies, has proved to be very expensive and very consuming of management time and commitment. At a time when most companies are de- layering and cutting back on their management head- counts, when the effects of recession are putting a squeeze on investment, and when the intensity of competition in the market place is diverting top management’s attention away from the internal working of the organisation, businesses are finding that they can only resource process reengineering on a piecemeal basis. Rather than reengineering the business as a whole they are therefore identifying the processes in which

The primary thrust of industrial engineering has always been to make organisations, as machines, more efficient in their performance of the tasks or processes for which they are designed. But the better engineered such a machine is, the less flexible it is when exceptional and unforeseen circumstances arise, and the less responsive it is to gradually changing needs or circumstances. Like an old-fashioned piece of garden or farm machinery, an inefficient machine, with a straightforward if unsophis- ticated design, large tolerances and plenty of slack, can cope with the unforeseen and be adapted when needs change. A more modern, efficient machine, with fine tolerances, carefully optimised around specific needs, is much less flexible. An unforeseen exception can put down the whole system and a change in needs can be accommodated effectively only by a total system redesign.

Humans are rather good at adaptation: observe a craftsman, a sportsman or a manager responding to

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changing circumstances and requirements by trial and error, drawing on experience and intuition to find an appropriate response. Machines cannot do this. They can respond in a predetermined way to changes in a given set of variables, but they cannot evaluate which variables are now relevant, they cannot experiment and they cannot learn. So it comes as no surprise that the application of industrial engineering has led repeatedly to organisations made up of specialists, each doing an efficient task but unable to communicate and coordinate with each other and unable to respond in any holistic way to changes in the business environment (Kanter, 1993; Burns and Stalker, 1961). Such organisations have quickly become inefficient, doing the wrong job perfectly but unable to do the job that is needed, and with ever growing resources devoted to coping with the exceptions that the machine cannot handle.

This is, of course, precisely the situation that process reengineering is designed to address, but is the new solution any more immune from the problems than its predecessors? Is it a new type of engineering, able to manage exceptions and change, or is it just a more sophisticated and expensive version of what went before? Its proponents would argue that it is the former, that the attention to processes rather than tasks gets over the problem of specialisation and that its use of state of the art information technology turns the traditional ‘dumb’ machine into an intelligent one, able to communicate and process information, to cope with exceptions and to respond flexibly to change.

These advances are certainly important. By drawing on expert systems and sophisticated data bases the modern machine-person can cope with a much wider range of situations than his predecessor could. Key variables can be closely monitored and subjected to multivariate analysis. But at the end of the day an information processing machine is still a machine, and can only cope with circumstances of which its designers were aware. The focus on processes is also less novel than it may appear. Until recently, information technology had been used only to automate existing administrative processes and not to design and facilitate new ones, but in the manufacturing context industrial engineering has always been concerned with processes. In this sense business process reengineering is not a development beyond traditional industrial engineering so much as the application of that science to a new field, that of administrative, clerical and service processes, that had previously lain outside its scope,

A second set of problems associated with traditional industrial engineering arises from the fact that however much people may be treated as machine components they are in the end human. This gives rise to a variety of difficulties. Because people are prone to error in a way that true machine components are not, their work has to be very tightly controlled. But these very controls act to prevent human initiative, judgement and responsibility when they are needed - when, for example, a fault occurs and the man must over-ride the machine

to prevent serious and costly damage, or to ensure that a customer’s needs are met. Allowed no responsibility in normal circumstances, a worker is unlikely to assume it when things go wrong. Allowed no say in how the work is done, he is unlikely to take pride in the result. More generally, the machine-worker suffers not only from poor motivation but also from boredom, stress and alienation (Argyris, 1957). Apart from being undesirable in themselves, these can also affect performance, as sickness and turnover rates rise, errors go undetected and valuable feedback information is lost.

How different is the new industrial engineering in these respects from the old? On the face of it the differences are enormous, for the proponents of the new approach talk of removing automated tasks and using expert systems to empower workers and give them autonomy. But history urges caution. The pioneers of the Organisation and Methods movement also talked of using calculating and computing machines to relieve people of the drudgery and tedium of routine clerical tasks, and for many of them this was indeed their driving vision. But what happened in the end was that people who had been employed to do arithmetic were replaced by people employed to enter computer data. A tedious and mundane intellectual task was replaced by a completely mind-numbing one. The machine won.

Process reengineering certainly gives the machine- worker responsibility and autonomy, for a process that previously involved three or four departments may well become the autonomous preserve of a single individual. But responsibility and autonomy are not the same as empowerment, even if they are usually what is meant by it in practice. Because of his autonomy the new-style machine-worker must take the blame when things go wrong, but he typically has little more say than his predecessors did as to how they should go right. The expert systems and the databases may limit and define his actions every bit as much as the production engineers have traditionally defined those of the assembly line worker.

The Dynamic Balance of the Organisation Business Process Reengineering is not an optional extra. As circumstances change, processes must be redesigned. But if the operation is to be a long-term success we must also learn from the past history of industrial engineering implementation. In particular, we must learn to avoid three classic dangers inherent in the engineering approach.

The first is the danger of piecemeal implementation. Because radical reengineering of the whole organisation is extremely difficult and expensive, it will always be tempting to do it piecemeal, process by process. But real engineers know only too well the dangers of this approach: the new bits do not relate properly to the old, all sorts of stresses are introduced, and you end up with something that is little more efficient, taken as a whole, than what you started out with, but substantially more

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troublesome and unreliable. It is the same with organisations, where the stresses are transmitted not only mechanically, through the linkages between processes, but also socially, as differences in process models lead to inconsistencies in reward and control systems, uncertainty and insecurity.

The second is the danger of fixity or rigidity. If processes are reengineered for the circumstances prevailing now, they may not be appropriate for those that will prevail next year or the year after. The more perfectly engineered the solution, the less flexible it will be to cope well with exceptional or changing circumstances. The more the organisation has invested in the reengineering, both financially and in terms of management time, the less responsive it will be to the need for further changes when, as it inevitably will, this need arises.

The third is the danger of alienation. Efficiency means machine-people. Autonomous or ‘empowered’ efficiency means highly stressed machine-people. The fact that a machine is beautifully engineered does not necessarily motivate its cogs. So long as it is perfect for its purpose and the parts are not worn, the stresses may be relatively small. But organisation designs are rarely perfect, even to start off with, and as the imperfections come to light and the components suffer from increasing wear and tear, so the stresses increase, the motivation fails and the performance declines.

These dangers can be overcome, but only if the process reengineering is conducted with due respect to what may be thought of as the dynamic balance of the organisation. Organisations are made up of people. They are living, and like all living organisms their parts need to be in balance if they are to function as a whole, and especially if they are to survive and prosper not only at an instant but also over time. The time element is of critical importance. If a person decides to ‘live for the present’ he can perhaps claim that that is his choice, and his alone. But a business organisation exists for multiple stakeholders, many of whom have long term interests in it. It must therefore strike a balance between present success and future prospects, and in organisational terms this comes down to a balance between short-term efficiency on one hand and responsiveness, flexibility and learning on the other. Just as the ‘learning organisation’ is no good if it doesn’t make a profit - if it is not reasonably efficient - so the ‘engineered organisation’ is no good if it cannot learn and respond to changing circumstances.

To achieve this balance between efficiency and learning, other factors must also be balanced. Organisations need control, both to ensure efficiency and to provide the direction without which the benefits of learning will be dissipated. But they also need motivation, without which the learning will not be captured in the first place, and efficiency could be compromised. They need autonomy, so that different activities can each fulfil their potential. But they also need coordination to ensure that

the parts add value to each other instead of subtracting it.

These three dimensions of organisational balance - autonomy and coordination, motivation and control, efficiency and learning - correspond directly to the three dangers of process reengineering highlighted above, and allow us to put these dangers into per- spective for each organisation. Many of the organisations that now seem in need of process reengineering have drifted out of balance in the past, building for ilearning and the longer term, and underestimating the competitive pressures and efficiency requirements of the present. For these organisations a re-emphasis on the present, and on efficiency, is appropriate. It must be done, however, in such a way as to preserve the learning strengths that are already there, and not in such a way as to eliminate them. For other companies, the pressures of the recent recession may already have led to a rebalancing, and especially to a loss of motivation, which would make further moves in the same direction dangerous and counterproductive. A certain amount of organisational slack can be a positive thing, and inefficiencies do not have to be eliminated just because they are there.

Once an organisation has gone out of balance, getting it back again is inevitably a very difficult and sensitive process. In an ideal world, adaptation to the environment would be a gradual incremental process in which the dynamic balance of the organisation was not put at risk. In practice, however, competitive environments can change very quickly, and companies very often do not change with them. There is a danger then that in trying to compensate they will over-compensate, and that instead of moving back into balance they will oscillate more and more violently from one extreme to another, a path which leads to certain failure. Only by remaining constantly aware of the dynamic balance of the organisation can this danger be averted.

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School Press, Cambridge MA. Davenport, T.H. and Short, J.E., (1990). The New Industrial

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Hendry, J., (1987). The Tea-shop Computer Manufacturer, Business History, 29, 73-102.

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Porter, M., (1985). Competitive Advantage, Free Press, New York. Stewart, T.A., (1993). Reengineering: the Hot New Managing

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& Row, New York.

JOHN HENDRY, Judge institute of Management Studies, University of Cambridge, Mill lane, Cambridge CB2 1RX

John Hendy is Director of the MBA Course at the Judge institute of Management Studies, and a Professorial Fellow

of Girton College, at the University of Cambridge.

Prior to joining Cambridge University in 1990, he was Director of the Centre for Strategic Management and Organisational Change at Cranfield School of Management, and before that on the staff of the Business Policy Department at the London Business School.

His main research interests are in strategic change processes, organisation theory and the moral and social dimensions of business policy. His most recent books are: Innovating for Failure: Government Policy and the Early British Computer Industry (MIT Press, 1989); European Cases in Strategic Management (with Tony Eccles, Sumantra Ghoshal, Per jenster and Peter Williamson: Chapman 6 Hall, 1992); Strategic Thinking: Leadership and the Management of Strategic Change (edited, with Gerry Johnson and Julia Newton: Wiley, 1993); and The Ethical Dimensions of Business (with Tom Sorell: Butterworth-Heinemann, 1994).

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process reengineering and the dynamic balance of the organisation

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