Business Process Reengineering Lean Management and Change Management

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The now-so-popular idea of business process reengineering (BPR) could be seen as an extension of time compression. The authors of the book Reengineering the Corporation, Michael Hammer and James Champy, also added a strong element of IT to the discourse, which from the perspective of spreading the ideas, contributed substantially to this process. Through a number of examples in their book, Hammer and Champy showed that the use of IT for the distribution of information through a business process could facilitate dramatic improvements in performance. Among other examples, they used the example of a process for evaluating loan applications at a bank, which had previously taken several weeks to perform. The reengineered version of this process took only a few hours, and it depended to a large extent on the implementation of IT systems.

The introduction of IT into the equation caught the attention of IT companies. Previously, time compression projects had primarily emphasized the low-tech information exchange tools that had been used by Toyota and other Japanese firms, such as "kanban" signaling through markers on trays for components that were sent between component suppliers and their customers. This signaling was used in order to signal that a tray was empty and had to be refilled. IT solutions for the electronic communication between business systems, called electronic data interchange (EDI), were also used. With BPR, the focus turned toward integrated business systems that distributed information throughout a company and made sure that each decision maker had access to the exact information that would be needed to make the decision. Prior to the implementation of integrated IT systems, systems were developed and implemented for the needs of each particular department in a company. When information had to be transferred from, say, the production department to the purchasing department, this had to be done using a specially programmed link between two systems, or, if the cost of programming and purchasing the software could not be justified, the information had to be manually entered into the purchasing system, using a list that had been extracted from the production system.

This need of manual transfer of data between companies and systems created a need of geographic proximity to other employees and to other companies in the supply chain, in order to ask questions, print lists from one IT system and transfer the information to another, and so on, limiting the opportunity to work closely together with people in remote locations. In this, and many other cases, the interface between the companies, or departments in the same company, was not well defined, and personal communication between employees was needed in order to perform daily routine tasks. This obstacle has largely been removed by integrated IT systems, in which all employees use the same databases to perform different tasks. In this new situation, business units, which work closely together with each other, can be located in different parts of the world and still exchange information in real time.

Integrated systems not only disposed of duplication of work, they also made it possible to speed up processes and even production to cater quickly to customer orders. This practice, which was also introduced in Western automotive companies, was also taken from Japan, where it had contributed both to low cost and to increased revenue. The virtues of time compression were highlighted in a large research program run by professors from MIT, in which some of the principles of lean management were formulated. The results from this project were published in 1990 in the book The Machine That Changed the World by James P. Womack, Daniel T. Jones and Daniel Roos. In this book, the practices and performance of European and American automotive companies were compared to those of their Japanese competitors. The study found that not only did the Japanese use less time in all the measured processes, they also organized operations using fewer resources. They found that the Japanese organizations were "leaner" and they urged American and European companies to organize in a similar way.

In a revealing table comparing a General Motors (GM) plant in Framingham to a Toyota plant in Takaoka, the authors showed the substantial differences in time and cost between the plants. They also argued that the principles of mass production used by GM and other Western companies had to give way to the lean principles developed by Japanese manufacturers. It was also argued that the principles of lean production to a large extent were the explanation of the Japanese miracle.

In a comparison between Framingham and Takaoka, the average time used for assembly of comparable cars was 40.7 hours at GM and 18.0 hours at Toyota. After adjustment of these figures, the timings for GM ended up at 31 hours and for Toyota at 16 hours. The number of assembly defects per car was found to be 130 at GM, compared to 45 at Toyota, the assembly space per car was 8.1 square foot per vehicle per year at GM compared to 4.8 at Toyota. In all, GM kept 2 weeks of inventory, compared to 2 hours of inventory at Toyota.3 The principles of lean production were rapidly translated into a number of principles, which started to be applied at American and European companies. Examples of these principles are "just-in-time" deliveries, "zero inventory" and "zero defects."

It turned out, however, that the transition from mass production to lean management was not as smooth and simple as companies initially tended to believe. It was often a matter of changing the whole layout of plants, retraining employees and management and introducing new measurements and control systems into production, purchasing and marketing. Change efforts involved these changes in the businesses, but they also involved the implementation of new integrated information systems, new machinery and assembly lines and other time-consuming activities. The transformation was not a matter of weeks or months, but a matter of years or even decades. Companies, such as ABB in its T50 project, had discovered the complexity of change. In the case of this project, and, similarly, in other projects, a small number of initial successes could be achieved, which indicated the tremendous potential of such efforts. It was, however, a long way from the beginning of a project to the final achievement of having changed all, or most, processes from mass production principles to lean principles, and achieved the cost reduction and time compression gains accordingly.

These insights gave rise to the competence area of "change management," which combines the different technologies and management principles that are used in order to achieve change, with the understanding of how human beings react to change and how rapidly a change program could be driven in a corporation. Based on the insight that change management is complex, and that a substantial number of people in the organization need to be involved, it has also increased the size of projects.

Typically, a strategy or time compression project in the late 1980s or early 1990s involved a team of four or five strategy consultants who reported to the management team, who took over responsibility for driving certain aspects of the strategic change suggested by the consultants. At the end of the twentieth century a change program in a company such as Chase Manhattan Bank or Telenor, the Norwegian telecom operator could directly involve several hundred persons, who participated in the project on a full-time or half-time basis. Such a project may have involved a strategic reorientation in conjunction with the operational changes that were necessary in that process.

Change management has become a substantial component in large-scale-change projects, both in the public sector and in private companies. Nowadays, a strategic reorientation in one line of business, or the implementation of an integrated business system, coupled with process reengineering efforts, may involve investments of hundreds of millions of dollars over 5 years or a decade. BPR, lean production, change management and other principles for change have substantially increased the market for business and IT consulting.

A corporation such as GE, which over two decades has completely changed its business from mature technologies and products to high-growth and high-tech products and services, would have spent billions of dollars in this process, not counting the investments that have been made directly in the acquisitions or development of new businesses. These investments in acquisitions, process development, IT and change management have accounted for a substantial share of investments in business during the past decades. This structure will never be completely finished, but similar to a railway network, the backbone structure, the control systems and the routines for running business in an efficient way will soon be in place to a large extent. When this happens, we will need new areas to attract our investments that can pay off better than the remaining small operational improvement opportunities in the global business of the future.

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