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Introduction
Over the last few years, US management has bought into the idea that radical
change may be their only hope for survival in the competitive environment of
the 1990s. From failing companies on the brink of bankruptcy to solid
corporations interested in achieving better performance, these hopes are found
in a concept called ``reengineering.'' Hammer and Champy, who popularized
this concept, define reengineering as the ``fundamental rethinking and radical
redesign of business processes to achieve dramatic improvement in critical,
contemporary measures of performance'' (Hammer and Champy, 1993). Central
to these efforts, information technology (IT) is one of the most prevalent
facilitators of process change. IT is often the primary catalyst, which allows a
company to achieve its business objectives. It is regarded as the essential
``enabler'' of reengineering. However, not all companies that embrace
reengineering are successful in attaining their goals. By some estimates, 70 per
cent of reengineering projects fail for one reason or another (Hammer and
Champy, 1993). In some companies, failures are often attributed to internal
organization problems. In other companies, projects fail because the IT
organization is often viewed as an obstacle to innovation. Management often
questions the value of IT because it is difficult to measure quantitatively.
During the 1980s, 85 per cent of all IT spending occurred in the service sectors,
while productivity in this sector increased by only 1.9 per cent (Kehoe, 1994).
Project failures can also result from a lack of senior management support. The
poor performance of an IT department can severely impair a department's
future credibility with upper management. Another major problem in all
companies is the time dedication required by a senior manager or board Business Process Management
member. One study suggests that for a reengineering project to be successful in Journal, Vol. 5 No. 4, 1999,
pp. 311-324. # MCB University
achieving major change in broad, cross-functional processes, 30 per cent to 50 Press, 1463-7154
BPMJ per cent of a senior executive's time is required throughout the entire project
5,4 (Hall et al., 1993).
Objective of study
All business decisions have an inherent risk of failure. However, the goal of
every manager should be to reduce the elemental risk in the decision process.
312 Reducing this uncertainty can be achieved through the power of knowledge.
The purpose of this paper is to expose non-technical managers to common IT
pitfalls that companies can experience. With this knowledge, managers will be
able to lessen the risk of reengineering failure.
Furthermore, it is important that managers understand the range of IT tools
available that will allow a company to perpetuate a reengineering initiative.
This understanding will lead managers to cultivate inductive thinking. This is
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Technical
Just as the organization outside of IT is important to a project's success, the
structure of the IT organization is even more crucial. According to one study,
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ERP systems
Enterprise planning systems (ERP) allow the sharing of real-time information
between manufacturers, customers and business partners. In 1997, ERP project
spending represented a $40 billion dollar industry. By 2002, it is expected to
BPMJ reach $94 billion (Stein, 1997). In its most basic form ERP is the 1990s version of
5,4 the electronic data interchange developed in the 1970s. Whereas many EDI
systems are prohibitively expensive due to costs associated with mainframe
technology, ERP systems are better suited for smaller companies. Some of the
benefits include: shorter manufacturing cycles; increased communication
between consumers and business partners; better supply-chain management;
318 and greater control of cost and operation management.
One application used commonly in ERP application is SAP, an enterprise
software application that allows a tight coordination between sales,
manufacturing, procurement, finance and accounting. Many companies utilize
SAP for global integration across geographical business units. For instance,
AutoDesk company implemented SAP with significant business results: quote
to time shipped reduced from two weeks to 24 hours and quarterly accounting
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Outsourcing
One of the more common trends in the IT industry in the past several years has
been the use of project outsourcing. Outsourcing is an attractive choice because
it allows companies to implement new technologies quickly, cut costs or
improve IT services. However, the reality of outsourcing falls short of the
perceived advantages. One of the inherent problems with outsourcing is the
high relationship between technology and internal business processes. When
systems are outsourced, systems and processes can often become dysfunctional
(Caldwell and McGee, 1997). Companies seeking radical change will not find Implementing
outsourcing a source of substantial productivity gain. However, for smaller reengineering
projects, outsourcing can be a cost-effective solution.
Consulting firms
Another popular trend is the use of outside consulting firms for a variety of
services. Consulting firms and the use of analysts are key during the planning 319
and implementation stages of reengineering. For instance, in 1997, companies
purchased on average 227 reports from consulting firms. One reason
companies turn to these types of companies is to prevent making poor business
decisions. Furthermore, because IT analysts are expensive to employ year-
round, companies can reap the benefits of this information by using consulting
firms. Common research topics include business applications, operating
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Enterprise software
In addition to ERP discussed earlier, other enterprise software solutions exist
which can lead to dramatic improvements in information processing. Supply-chain
systems allow suppliers, distributors and retailers to connect, similar to ERP
systems. These systems allow a company to outsource specific portions of the
production process to the best-equipped business partner. Furthermore, supply-
chain systems focus on supplier issues and are often more affordable than larger,
more functionally integrated systems like SAP. Once Thompson Consumer
Electronics implemented supply-chain software, the company benefited
tremendously by process change. After employee training, the company was able
to reduce its planning and scheduling staff from 22 to four (Stein, 1997).
Sales and business process automation is also becoming an increasingly
popular area for reengineering. One reason for its rising popularity can be
attributed to the falling prices of software. Once at over $3,000 per user,
systems can be acquired for under $1,000 per user. As software improves,
prices will continue to fall while features will continue to grow. These types of
systems seem more common in smaller companies, where legacy (mainframe)
systems are less prevalent. Once again, the results speak for themselves. In one
company, as a result of better communication between salespeople and the
BPMJ corporate headquarters, sales immediately increased by 20 per cent after
5,4 sufficient training. Over the next few years, sales-force automation is expected
to grow at a rate of 35 per cent per year (Lent, 1997).
Another popular area for software implementation is in business process
reengineering (BPR) software. Although some of these software applications
are limited in capabilities, the majority of packages will give companies a good
320 start with the planning aspects of a reengineering project. Software prices
begin at $600 for simple flowcharting and can go up to tens of thousands of
dollars for sophisticated simulation/modeling software. Depending on the size
of the company and the size of the reengineering project, BPR software is well
worth investigating.
Internet
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Over the last few years, companies have been investing heavily in the Internet
in hopes that a revolution would occur overnight. Many companies agree that
using the Internet provides a competitive advantage to their business. Some of
the areas which are driving the development of Internet applications in
businesses tend to be directed toward communication and customer service
areas. For instance, in the computer industry, the use of the Internet has had a
severe impact on improving margins. Look at a company like Microsoft which
distributes hundreds of different software products, each with different
versions and operating systems. In the days before the advent of Internet,
Microsoft would distribute software updates to thousands of different
customers. Disk duplication, handling costs, distribution costs, to name a few,
represented a sizable expense. With the Internet, a single point of distribution
to all customers could be created at a fraction of the cost. Essentially, the
Internet allows the barrier between the company and customer to be
diminished. Some other benefits include: better communication, cost reduction,
increased productivity and a flattening of the organization (Information Week,
November 17, 1997).
However, not all companies experience the same level of dramatic business
process improvement. Understanding the technical hurdles surrounding the
Internet are pivotal before any business process strategy can be developed.
Security, employee productivity and support are just a few of the main IT
concerns. A company's decision to outsource its Internet business or develop a
strategy internally using existing IT can have severe financial repercussions on
a company. Other technical concerns include the reliability of Internet-based
systems and management concerns.
Intranet
An intranet is like an internal Internet for the corporation. An intranet is a
software/hardware/network system that is accessible to the entire company. The
term intranet is used because the information on the system is only accessible to
employees within the company. Sophisticated security prevents people from
outside the company from gaining access to company-held information.
An intranet allows employees to use a software application, like an Internet Implementing
browser, to gain access to a wide variety of information. Employees can access reengineering
text, images, audio and video. The main advantage of an intranet is its ability
to create a single point of distribution to the entire company. If all employees
have access to the intranet, then information can be instantaneously distributed
to all employees with little effort. Imagine the costs associated with the simple
task of informing 60,000 employees about simple procedure change. Not only 321
does the company save money on distribution, but it also improves information
speed and corporate communication.
Many companies are using intranet strategies for application training and for
human resource management. When used prior to a new application launch,
such as a SAP or ORACLE based product, an intranet training solution could
disseminate important information to all users instantly. In addition, as updates
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and changes to the system are made, all employees can be notified immediately.
EDI
Electronic data interchange (EDI) is still used in many companies for keeping
customers and suppliers in contact with one another. Over the years,
companies like Wal Mart have made substantial investments in EDI. In
addition, business partners wishing to work with Wal Mart have also been
required to use EDI as a method of conducting business. Recently, EDI systems
have improved by allowing more information to be communicated from the
retailer back to the manufacturer. This is done by using bar-coding, which
allows manufacturers to monitor consumer demands in different regions. The
end result is better control of purchasing and inventory.
Many companies have combined EDI solutions with ERP solutions like SAP.
For instance, when Lennox International, a manufacturer of heaters and air
conditioners, reengineered using SAP and EDI, its lead time improved from 14
weeks to two weeks (Schwatz, 1996). Not only does EDI allow companies to
manage inventory, it gives the company the capability to smooth out the peaks
and valleys in the normal production cycle.
Another future trend in EDI is the use of the Internet as the primary method
of communication. Most EDI systems operate on what is known as value-added
networks (VAN), private networks used for data communication. VANs are
typically very expensive and prohibit smaller companies from implementing
EDI. As these combined EDI/Internet systems become more secure, more
companies will be able to utilize the technology as a source of cost reduction
and process improvement.
Knowledge management
The concept of knowledge management is a method that allows employees to
gain access to the knowledge base of a company. Essentially, by allowing
employees access to explicit and tacit knowledge, a corporation can develop
more informed employees, which in turn, will lead to greater innovation.
Explicit knowledge is common, public information. Tacit knowledge explains
BPMJ the difference between an engineer with one year of experience and an engineer
5,4 with 20 years of experience. Certain types of expertise can only be acquired
through extended periods of working knowledge.
Knowledge management can be achieved through information repositories
and specialized networks. A few years ago, these types of systems would be
prohibitively expensive due to the high costs associated with enterprise wide
322 computer systems. However, smaller client-server applications are now
available which can serve an entire organization at a fraction of the cost of
older mainframe technologies. Dow Chemical decided to develop a system,
which analyzed data from nearly 30,000 of its internal patient files. The end
result of Dow's reengineering was an increase in licensing royalties from $20 to
$125 million over a three-year period and a reduction of nearly $4 million per
year in tax maintenance (Schwatz, 1996).
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Legacy systems
Legacy systems, or mainframe computer systems, will continue to remain an
integral part of corporations. During the 1980s, as computing costs continued to
fall, many companies began switching their mainframe applications to less
expensive UNIX based client-server systems. However, the long-term advantages
of client-server over legacy systems are open to debate. Many companies
switched to client-server in order to reduce costs, but the long-term reality was an
increase in operating costs. In addition, management costs and security were also
major concerns. In 1994 and 1996, Deloitte and Touche surveyed companies on
the obstacles faced in replacing in-house legacy systems. The survey reported
that while some companies were less concerned with the replacement costs, many
indicated an uncertainty about the future direction of business and what types of
systems would be required to support future applications (Bertin, 1997).
The bottom line is that IT organizations are once again looking to re-
centralize client-server applications into a single system. At Chrylser, nearly
160 UNIX client-servers were consolidated into a single system. Savings from
operating costs alone totaled nearly $1 million dollars after implementation. In
addition, from an IT perspective, Chrysler realized the following benefits: easier
management, improved security, easier disaster-recovery and increased system
performance. From a customer service perspective, a problem ticket that took
four hours to complete was reduced to 50 minutes after the system was
implemented (Garvey, 1997).
Implications and conclusion Implementing
Project failure can be attributed to a variety of issues: internal conflicts, reengineering
structural issues, timing, coordination of technologies, communication or
product mixes. After all, the goal of management should be to lessen the risk of
failure through lack of knowledge. When managers make informed decisions,
corporations succeed. When managers are knowledgeable, innovation happens.
Reengineering is a corporate process that involves radically changing 323
business processes through the use of IT as the central enabler. Management
should take the time to learn from the history of companies that have failed in
reengineering. In the process important questions should be raised: Why did
company XYZ fail to reach its objectives? What should company XYZ have
done differently? As a manager what can I learn from company XYZ's
misfortune?
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Equally important is the idea that the corporation is a living entity that
continually changes and evolves. For this reason management should be
constantly looking for areas in which to improve processes and the flow of
information. Although this inevitably involves the use of IT, it is important for
managers to understand the tools available, which will enable reengineering to
occur.
The evolution of the corporation represents a process of continuous change.
With change, come challenges, success and failure. If companies wish to survive
in a global economy, change is required in the process of achieving corporate
maturity. The process of change, such as reengineering, places a heavy burden
on the IT organization. For IT to improve business processes successfully,
communication, coordination and understanding are required. When managers
have a better understanding of the problems facing IT, as well as the tools which
can help promote internal process change, then the corporation can dramatically
improve its chances for achieving reengineering success.
References
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Brynjolfsson, E. and Hitt, L. (1997), ``Breaking boundaries'', Information Week, September 22,
pp. 55-61.
Caldwell, B. (1994), ``Missteps, miscues ± business reengineering failures'', Information Week,
June 20, p. 50.
Caldwell, B. and McGee, M. (1997), ``Outsourcing backlash'', Information Week, September 29,
p. 14-16.
Davenport, T. (1995), ``SAP: big change comes in big packages'', CIO, October 15.
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