Reengineering

by Paul A. Strassmann

excerpted from The Politics of Information Management
The Information Economics Press, 1995
Early in 1993, an epochal event took place in the US. For the first time in history, "white-collar" unemployment exceeded "blue-collar" unemployment. In the experience of older generations, a college education entitles one to a job with an excellent earning potential, long-term job security and opportunity to climb a career ladder. If there was an economic downturn, unemployment was something that happened to others.

Large-scale white collar unemployment should not have come as a surprise. Since 1979, the US. information workforce has kept climbing and in 1993 stood at 54% of total employment. Forty million new information workers had appeared since 1960.

What do these people do? They are very busy and end up as either as corporate or social overhead if they work in the public sector. They are lawyers, consultants, coordinators, clerks, administrators, managers, executives and experts of all sorts. The expansion in computer-related occupations greatly increased the amount of information that these people could process and therefore demand from others. It is the characteristics of information work that it breeds additional information work at a faster rate than number of people added to the information payroll. Computers turned out to be greater multipliers of work than any other machine ever invented.

However, the greatest growth has been in government which now employs more people than the manufacturing sector. Government workers predominantly are engaged in passing information and redistributing money which requires compliance with complex regulations.

Who pays for this growth in overhead? Everybody does either in higher prices or as increased taxes. As long as US. firms could raise prices, there was always room for more overhead. When international economic competition started cutting into market share starting in the 1980s corporations had to reduce staff costs.

Blue collar labor essential to manufacture goods was either outsourced to foreign lands, or automated, using proven industrial engineering methods to substitute capital for labor. By the mid 1980s major cost cuts could come only from reductions in overhead.

Overhead Cost Reduction

Early attempts announcing 20% or more across-the board layoffs in major corporations misfired. The most valuable experts left first to start up business ventures, most often with the knowledge they gained while the large firms lingered in bringing innovations into the marketplace. Much of the dynamic growth of the Silicon Valley and of the complexes surrounding Boston have their origins in the entrepreneurial exploitation of huge research and development investments of large corporations.

The next wave was even more wasteful, because overhead was reduced by imposing cost cutting targets without the benefit of redesigning any of the business processes. Companies that resorted to these crude methods did not have the experience how to measure the value-added of information workers. Therefore, they resorted to methods that may have been somewhat effective for controlling "blue collar" employees. That was not successful because the same treatment that was acceptable for factory workers made the remaining management staff act in defensive and counterproductive ways to protect their positions. Such methods disoriented and demoralized many who were responsible for managing customer service.

This is where reengineering came in. It applies well known industrial engineering methods of process analysis, activity costing and value-added measurement which have been around for at least 50 years.

Appearance of Reengineering

The essence of reengineering is to make the purge of recent excess staffing binges more palatable to managers. These executives became accustomed to increasing their own staff support as a means for towards gaining greater organizational clout. An unspoken convention used by of officials at high government and corporate levels, is that a "position" in a hierarchy exists independently of whether something useful is delivered to customers. The primary purpose of high level staffs is to act as guardians of the bureaucracy's budget, privileges and influence.

If you want to perform surgery on management overhead, do not do it in a dark room with a machete. First, you must gain acceptance from those who know how to make the organization work well. Second, you must elicit their cooperation in telling you where the cutting will do the least damage. Third, and most importantly, they must be willing to share with you insights where removal of an existing business process will actually improve customer services.

Budget cutters who do little else than seek out politically unprotected components, cannot possibly know what are the full consequences of their actions.

Reengineering offers to them an easy way out. Reengineering calls for throwing out everything that exists and recommends reconstituting a workable organization on the basis of completely fresh ideas. The new business model is expected to spring forth from the inspired insights of a new leadership team.

Reengineering is a contemporary repackaging industrial engineering methods from the past, rather something that is totally original. This cure is now administered in large doses to business enterprises that must instantly show improved profits to survive. However, reengineering differs from the incremental and carefully analytic methods of the past. In political form it is much closer to a coup d'état than to the methods of a parliamentary democracy.

Reengineering in the Public Sector

Despite admirable pronouncements about reengineering the US. government, it remains to be seen if that may be a smoke screen to justify more spending. As long as the federal government continues to increasing taxes - an easy way out of any cost pressures - the prospects of reinventing the government will remain dim.

Reinventing government does not deliver savings if meanwhile you keep expanding its scope. You can have less bureaucracy only of you eliminate functions that have demonstrably failed, such as loan guarantees, public housing, diverting schools from education to social experimentation, managing telecommunications and prescribing health care. Except for defense, justice, foreign relations and similar tasks which are essential instruments of governance, public sector attempts at economic engineering have always failed.

The latest Washington reengineering campaign may turn out to be a retrogression instead of an improvement. You do not enhance a stagnating economy by claiming to save a probable $108 billions so that you can add over a trillion dollars of economic control to the public sector.

An emetic will be always an emetic, regardless of the color and shape of the bottle it comes from. It does not do much for those who keep up a healthy diet by eating only what their body can use. A cure claiming to be an emetic but which nevertheless fattens will increase obesity.

Extremists

Reengineering is a great idea and a clever new buzzword. There is not a manager who would not support to the idea of taking something that is defective and then fixing it. Industrial engineers, methods analysts and efficiency experts have been doing that for a long time.

The recently introduced label of efficiency through reengineering covers the adoption of radical means to achieve corrective actions. This extremism offers what appears to be instant relief from the pressures on corporate executives to show immediate improvements. reengineering, as recently promoted, is a new label that covers some consultants' extraordinary claims.

To fully understand the intellectual roots of reengineering, let the most vocal and generally acknowledged "guru" of reengineering speak for himself.

"American managers ...must abandon the organizational and operational
principles and procedures they are now using and create entirely new ones."
"Business reengineering means starting all over, starting from scratch."
"It means forgetting how work was done...old titles and old organizational
arrangements...cease to matter. How people and companies did things
yesterday doesn't matter to the business reengineer."

"Reengineering...can't be carried out in small and cautious steps. It is an
all-or-nothing proposition that produces dramatically impressive results."

The Contributions of Mike Hammer

When Hammer was queried "How do managers contemplating a big reengineering effort get everyone inside their company to join up?" he answered in terms that reflect the violent point of view of all extremists in how to achieve any progress: "...On this journey we...shoot the dissenters." The theme of turning destruction on your own people remains a persistent motive: "...It's basically taking an ax and a machine gun to your existing organization."

In view of the widespread popularity of Hammer I wonder how executives can subscribe to such ferocious views while preaching about individual empowerment, teamwork, partnership, participative management, knowledge-driven enterprise, learning corporation, employee gain sharing, fellow-worker trust, common bond, shared values, people-oriented leadership, cooperation and long-term career commitment.

I usually match the ideas of new prophets with past patterns. It helps to understand whether the what's proposed is repackaging of what has been tried before. I find Hammer's sentence structure as well as his dogmatic pronouncements as something that resonates with the radical views put forth by political hijackers like Robespierre, Lenin, Mao and Guevara. Just replace some of the nouns, and you can produce slogans that have been attributed to those who gained power by overthrowing the existing order.

It is no coincidence that the most widely read book on reengineering carries the provocative subtitle, "A Manifesto for Business Revolution" and claims to be a "seminal" book comparable to Adam Smith's The Wealth of Nations - the intellectual underpinning of capitalism. All you have to remember is that there is another book, also bearing the title "Manifesto," that successfully spread the premise that the only way to improve capitalism is to obliterate it.

What is at issue here is much more than reenginering, which has much to commend to itself. The question is one of morality of commerce against the morality of warfare.

The morality of warfare, of vengeance, violent destruction and the use of might has been with us every since primitive tribes had to compete for hunting grounds. Societies have recognized the importance of warfare by sanctioning a class that was allowed, subject to some rules, to kill, while the redeeming code of loyalty and self sacrifice for the good of all would prevail.

The morality of commerce has been with us at least since 500 BC. It is based on shunning force, coming up with voluntary agreements, collaboration even with strangers and aliens, respecting contracts and promoting exchanges that benefit both to the buyer and the sellers.

Just about every major national tragedy in the last few centuries can be traced to the substitution of the morality of warfare for the morality of commerce, under the guise that this will lead to greater overall prosperity. Mike Hammer's adoption of the non-redeeming expressions of military morality have crossed the line what ought to be acceptable. Reengineering is and should remain an activity in the commercial domain and should be bound by its morality. Leave the military language and thinking to those who have to deal with the difficult choices one faces when confronting the prospects of getting shot at.

Effectiveness of Revolutionary Changes

I have listened carefully to the extremists who are the most prominent promoters of the proven old ideas now repackaged as a managerial innovation. Their well financed promotional efforts have succeeded in gaining at least temporary respectability for "reengineering." I have found that they have successfully translated the radicalism of the 1960's, with its socially unacceptable slogan "Do not reform, obliterate!" into a fashionable, money-making proposition. The clarion call for overthrowing the status quo is similar to that trumpeted by the radical students who occupied the Dean's office. Now the same arguments can be fashioned into more lucrative consulting services. If you ask what many of the radical proponents of reengineering what they did while they were the University during the 1960's, you will find a surprising number who pride themselves as erstwhile anti-establishment "revolutionaries."

If you look at political revolutionary movements back in time to the French Revolution, you will find their leaders motivated by a fixation on seizing power from the Establishment under whatever slogan that could be sold to those who hoped to improve justice, freedom or profit. Revolutionary leaders in the past 200 years, who were mostly intellectuals who hardly ever delivered anything other than pamphlets and speeches, have been consistent in making conditions worse after they take over the Establishment. There is one thing that all past revolutionary movements have in common with the extremist views of "reengineering." In each case, the leaders call for complete and uncompromising destruction of the institutions as they exist. It is only through this kind of attack on customs, habits and relationships that newcomers can gain influence without much opposition. The common characteristic of the elite that agitates destructively for positions of leadership is an arrogance that they are the only ones with superior insight who can be trusted in what to do.

I am in favor of making evolutionary improvements in the way people work. If you want to call that reengineering, that's OK, though I prefer to call it "business process redesign" because the other label has become tainted by extremism. Besides, you cannot reengineer something that has not been engineered to begin with. Organizations evolve because it is impossible to design complex human relationships as if they were machine parts.

What matters is not the label, but by what means you help organizations to improve. The long record of miscarriages of centrally planned radical reforms, and the dismal record of reengineering as acknowledged by Mike Hammer himself, suggest that an evolutionary approach will deliver better and more permanent improvements.

Views on Business Improvement

Lasting improvements in business processes can be made only with the support of those who know your business. Creating conditions for continuous, incremental and adaptive change is the primary task of responsible leadership. Cut-backs that respond abruptly to a steadily deteriorating financial situation are a sure sign that management has been either incompetent or asleep.

Evolutionary change stimulates the imagination and the morale. It creates conditions for rewarding organizational learning and for inspiring employees to discover innovative ways for dealing with competitive challenges and with adversity.

Dismissing employees on a large scale, accompanied by incentives for long-time employees to resign voluntarily, will paralyze those who are left with fear and an aversion to taking any initiatives. It will force out those who are the most qualified to find employment elsewhere. You will end up with an organization that will suffer from self-inflicted wounds while the competition is gaining on you. If you lose your best people, you will have stripped yourself of your most valuable assets. Getting rid of people because they have obsolete skills is a reflection of past neglect of the organization to innovate and learn. Liquidating a company is easy and profitable, but somebody ought to also start thinking about how to rebuild it for growth. That is the challenge of leading today's losers to tomorrow's winners.

How do you perform business process redesign under adverse conditions? How do you motivate your people to give you their best so that they may prosper again, even though some positions of privilege will change or cease to exist?

Business Process Redesign

To be successful, business process redesign depends on the commitment and imaginative cooperation of your employees. Business process redesign must demonstrate that only by working together they can improve their long-term opportunities. Business process redesign relies primarily on the accumulated know-how of existing employees to find conditions that will support the creation of new jobs, even if that means that in the short run many of the existing jobs will have to cease to exist.

In business process redesign, the people directly affected by the potential changes study the "as-is" conditions and propose "to be" alternatives to achieve the desired improvements. In business process redesign everybody with an understanding of the business will be asked to participate. External help is hired only for expertise that does not already exist anywhere internally.

Business process redesign calls for applying rigorous methods to charting, pricing and process flow analysis of "as-is" conditions. Process redesign is never finished during the lifetime of a company. After implementing any major improvement new payoff opportunities will always emerge from what has just been learned. The primary objective of the business process improvement is to create a learning environment in which renewal and gain will be an ongoing process instead of just a one time shock therapy. Adopting formal business process flow methods and a consistent technique for keeping track of local improvements allows combining later on processes that were initially isolated for short-term delivery of local gains in productivity.

Business process redesign balances the involvement of information managers, operating managers and subject matter experts. Cooperative teams are assembled under non-threatening circumstances in which much time is spent and perhaps wasted in discussing different points of view. Unanimity is not what business process is all about. Differences are recorded, debated and passed on to higher levels of management for resolution.

Business process redesign requires that you perform a business case analysis, which calculates not only payoffs but also reveals the risks of each proposed alternative. This is not popular because the current methods for performing business case analysis of computerization projects call for calculations that do not have the integrity for making them acceptable to financial executives.

The overwhelming advantage of business process redesign, as compared with "reengineering," lies in its approach to managing organizational change. The relatively slow and deliberate process redesign effort is more in tune with the approach that people normally use to cope major changes. Every day should be process redesign day, because that is how organizational learning takes place and that is how you gain the commitment of your people. At each incremental stage of process design, your people can keep up the pace with their leaders, because they can learn how to share the same understanding of what is happening to the business. They are allowed the opportunity to think about what they are doing. They are not intimidated by precipitous layoffs that inhibit their sharing of ideas how to use their own time and talent more effectively.

Character of Reengineering

Reengineering, as currently practiced, primarily by drastic dictate and with reliance on outsiders to lead it, assumes that your own people cannot be trusted to fix whatever ails your organization. reengineering accepts primarily what the experts, preferably newcomers to the scene, have to offer.

In reengineering the consultants will recommend to you what the "to be" conditions ought to look like, without spending much time understanding the reasons for the "as-is" conditions. The credo of reengineering is to forget what you know about your business and start with a clean slate to "reinvent" what you would like to be. What applies to individuals or nations, certainly applies to corporations: you can never totally disregards your people, your relationships with customers, your assets, the accumulated knowledge and your reputation. Versions of the phrase "...throw history into the dustbin and start anew" has been attributed to every failed radical movement in the last two hundred years.

Reengineering proponents do not worry much about formal methods. They practice techniques of emergency surgery, most often by an amputation. If amputation is not feasible, they resort to tourniquet-like remedies to stopping the flow of red ink. Radical reengineering may apply under emergency conditions of imminent danger as long as someone considers that this will most likely leave us with a patient that may never recover to full health again because of demoralization of the workforce. It is much swifter than the more deliberate approach of those who practice business process redesign. No wonder, the simple and quick methods are preferred by the impatient and those who may not have to cope with the unforeseen long term consequences on what happens to the quality and the dedication of the workforce.

In reengineering participation by most of the existing management is superfluous, because you are out to junk what is in place anyway. Under such conditions, for instance, bringing in an executive who was good in managing a cookie company to run a computer company makes perfect sense.

In reengineering debates are not to be encouraged since the goal is to produce a masterful stroke of insight that suddenly will turn everything around. Autocratic managers thrive on an opportunity to preside over an reengineering effort. reengineering also offers a new lease on the careers of chief information officers with propensities to forge ahead with technological means as a way of introducing revolutionary changes. A number of spokesmen in recent meetings of computer executives offered reengineering as the antidote to the slur that CIO stands for "Career Is Over."

Reengineering conveys a sense of urgency that does not dwell on much financial analysis, and certainly not formal risk assessment. Managers who tend to rely on bold strokes rebel against analytic disciplines. When it comes to business case analysis we have the traditional confrontation of the tortoise and the hare - the plodders vs. the hip-shooters. Sometimes the hip-shooters win, but the odds are against them in an endurance contest.

Reengineering does not offer the time or the opportunities for the much needed adaptation of an organization to changing conditions. It imposes changes swiftly by fiat, usually from a new collection of people imported to make long overdue changes. Even if the new approach may be a superior one for jarring an organization out of its ingrown bad habits, it will be hard to implement because those who are supposed to act differently will now have a negative attitude to do their creative best in support of the transition from the old to the new.

Reengineering has the advantage of being a choice of last resort when there is no time left to accomplish business process redesign. In this sense, it is akin to saying that sometimes dictatorship is more effective than community participation. Without probing why the leadership of an enterprise ever allowed such conditions to occur, I am left with a nagging doubt if the drastic cure does not ultimately end up causing worse damage than the disease.

Constitutional democracies, despite occasional reversals in fortune, have never willingly accepted dictatorship as the way out of their troubles. On the other hand, the record of attempts to deal with the crises in governance by drastic solutions is dismal. Though occasionally you may find remarkable short term improvements, extreme solutions that have destroyed past accumulation of human capital have always resulted in viewing an era of violence as times of retrogression.


(c) Copyright 1996, Strassmann, Inc.
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