] Despite a decade or more of restructuring and downsizing, many U.S. companies are still unprepared to operate in the 1990s. In a time of rapidly changing technologies and ever-shorter product life cycles, product development often proceeds at a glacial pace.
] The usual methods for boosting performance—process rationalization and automation—haven’t yielded the dramatic improvements companies need. In particular, heavy investments in information technology have delivered disappointing results—largely because companies tend to use technology to mechanize old ways of doing business. They leave the existing processes intact and use computers simply to speed them up.
] Many of our job designs, work flows, control mechanisms, and organizational structures came of age in a different competitive environment and before the advent of the computer. They are geared toward efficiency and control. Yet the watchwords of the new decade are innovation and speed, service and quality.
] It is time to stop paving the cow paths. Instead of embedding outdated processes in silicon and software, we should obliterate them and start over. We should “reengineer” our businesses: use the power of modern information technology to radically redesign our business processes in order to achieve dramatic improvements in their performance.
] Reengineering strives to break away from the old rules about how we organize and conduct business. It involves recognizing and rejecting some of them and then finding imaginative new ways to accomplish work. From our redesigned processes, new rules will emerge that fit the times. Only then can we hope to achieve quantum leaps in performance.
] Reengineering cannot be planned meticulously and accomplished in small and cautious steps. It’s an all-or-nothing proposition with an uncertain result.
] EXAMPLES - Japanese competitors and young entrepreneurial ventures prove every day that drastically better levels of process performance are possible. They develop products twice as fast, utilize assets eight times more productively, respond to customers ten times faster. Some large, established companies also show what can be done. Businesses like Ford Motor Company and Mutual Benefit Life Insurance have reengineered their processes and achieved competitive leadership as a result. Ford has reengineered its accounts payable processes, and Mutual Benefit Life, its processing of applications for insurance.
] Ford was enthusiastic about its plan to tighten accounts payable—until it looked at Mazda. While Ford was aspiring to a 400-person department, Mazda’s accounts payable organization consisted of a total of 5 people. The difference in absolute numbers was astounding, and even after adjusting for Mazda’s smaller size, Ford figured that its accounts payable organization was five times the size it should be. The Ford team knew better than to attribute the discrepancy to calisthenics, company songs, or low interest rates.
] When Ford’s purchasing department wrote a purchase order, it sent a copy to accounts payable. Later, when material control received the goods, it sent a copy of the receiving document to accounts payable. Meanwhile, the vendor sent an invoice to accounts payable. It was up to accounts payable, then, to match the purchase order against the receiving document and the invoice. If they matched, the department issued payment.
] The department spent most of its time on mismatches, instances where the purchase order, receiving document, and invoice disagreed. In these cases, an accounts payable clerk would investigate the discrepancy, hold up payment, generate documents, and all in all gum up the works.
] One way to improve things might have been to help the accounts payable clerk investigate more efficiently, but a better choice was to prevent the mismatches in the first place. To this end, Ford instituted “invoiceless processing.”
] Now when the purchasing department initiates an order, it enters the information into an on-line database. It doesn’t send a copy of the purchase order to anyone. When the goods arrive at the receiving dock, the receiving clerk checks the database to see if they correspond to an outstanding purchase order. If so, he or she accepts them and enters the transaction into the computer system. (If receiving can’t find a database entry for the received goods, it simply returns the order.).
] Under the old procedures, the accounting department had to match 14 data items between the receipt record, the purchase order, and the invoice before it could issue payment to the vendor. The new approach requires matching only three items—part number, unit of measure, and supplier code—between the purchase order and the receipt record. The matching is done automatically, and the computer prepares the check, which accounts payable sends to the vendor.
] Ford didn’t settle for the modest increases it first envisioned. It opted for radical change—and achieved dramatic improvement. Where it has instituted this new process, Ford has achieved a 75% reduction in head count, not the 20% it would have gotten with a conventional program. And since there are no discrepancies between the financial record and the physical record, material control is simpler and financial information is more accurate.
] Mutual Benefit Life, the country’s eighteenth largest life carrier, has reengineered its processing of insurance applications. Prior to this, MBL handled customers’ applications much as its competitors did. The long, multistep process involved credit checking, quoting, rating, underwriting, and so on. An application would have to go through as many as 30 discrete steps, spanning 5 departments and involving 19 people. At the very best, MBL could process an application in 24 hours, but more typical turnarounds ranged from 5 to 25 days—most of the time spent passing information from one department to the next. (Another insurer estimated that while an application spent 22 days in process, it was actually worked on for just 17 minutes.).