Hammer, Michael: Reengineering Work: Don't Automate, Obliterate - Managers can release the real power of computers by challenging centuries-old notions about work, in: Harvard Business Review, July/August 1990.

THEMES: Hammer, Michael
YEAR: 1990

Comments/attachments: Close
1falsche Herangehen an Re-Engineering: alte Strukturen auf Computer abbildenS.104
2gutes Zitat, was falsch daran ist, alte Strukturen auf Computer abzubildenS.107
4wie ein solches Reengineering machen?S.112

M. Hammer: Reengineering Work: Don't Automate, Obliberate

Managers can release the real power of computers by challenging centuries-old notions about work.

Reengineering Work: Don't Automate, Obliterate
by Michael Hammer

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 rapidIy changing technologies and ever-shorter product life cycles, product development often proceeds at a glacial pace. In an age of the customer, order fulfillment has high error rates and customer inquiries go unanswered for weeks. In a period when asset utilization is critical, inventory levels exceed many months of demand.
The usual methods for boosting performanceprocess rationalization and automation-haven't

Use computers to redesign - not just automate- | existing business processes.

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 mechamze old ways of doing business. They leave the existing processes intact and use computers simply to speed them up.
But speeding up those processes cannot address their fundamental performance deficiencies. Mam of our job designs, work flows, control mechanismand 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 decad are innovation and speed, service and quality.
It is time to stop paving the cow paths. Instead, embedding outdated processes in silicon and software, we should obliterate them and start over.We should "reengineer" our businesses: use the power, modem information technology to radically redesign our business processes in order to achieve dramatic improvements in their performance.
Every company operates according to a great many unarticulated rules. "Credit decisions are made b the credit department.''
"Local inventory is needed for geod customer service." "Forms must be filled completely and in order.'' Reengineering strives 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-ornothing proposition with
an uncertain result. Still, most companies have no choice but to muster the couragc to do it. For many, reengineering is the only hope
for breaking away from the antiquated processes that threaten to drag them down. Fortunately, managers arc not without help. Enough
businesses have successfully reengineered their processes to provide some rules of thumb for others.

What Ford and MBL Did

Japanese competitors and young entrepreneurialb 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 also show what can done. Businesses like Ford Motor Company and Mutual Benefit Life Insurance have
reengineered their proecsses and achieved competitive leadership as a result. Ford has reengineered its accounts payable processes,
and Mutual Benefit Life, its processing of applications for insurance. In the year 1980s, when the American automotive industry was
in a depression, Ford's top management put accounts payable-along with many other departments - under the microscope in search
of ways to cut costs. Accounts payable in North America alone employed more than 500 people. Management thought that by r
ationalizing processes and installing new computer systems, it could reduce the head count by some 20%.
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.

Ford managers ratcheted up their goal: accounts payable would perform with not just a hundred but many hundreds fewer clerks.
It then set out to achieve it. First, managcrs analyzed the existing system. When Ford's purchasing department wrote a purchasc
order, it sent a copy to accounts payable. Later, when material controi 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 invoicc. If they matched, the department issued payment.
The department spent most of its time on mismatches, instances where thc 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 payab!e clerk investigate more efficiently, but a better choice
was to prevent the mismatches in the first place. To this end, Ford instituted "invoieeless processing." Now when the purchasing
department initiates an order, it enters thc intormation 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 canīt 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 re-

Why did Ford need 400 accounts payable clerks when Mazda had just 5 ?

ceipt record, the purchase order, and the invoice before it could issuc 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 There are no invoices to
worry about since Ford has asked its vendors not to send them. ( See the diagram, "Ford's Accounts Payable Process...," for
illustrations of the old and new payables processes.)
Ford didnīt settle for the modest increases it first envisioned. It opted for radical change - and achieved dramatic improvemcnt
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 physicai record, material
control is simpler and financial infommation is more accurate.Mutual Benefit Life, the countryīs 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 check ing, quoting, rating, underwriting, and so on. An ap plication would have to
go through as many as 30 discrete steps, spanning 5 departments and involving 19 people. At the very best, MPL could process an
ap plication in 24 hours, but morc typical tumarounds ranged from 5 to 25 days-most of the time spent passing information from one
department to thr next. (Another insurer estimated that while an application spent 22 days in process, it was actually worked on
for just 17 minutes. )
MBL's rigid, sequential process led to many com plications. For instance, when a customer wanted to cash in an existing policy
and purchase a new one the old business department first had to authorize the treasury department to issue a check made payable
to MBL. The check would then accompany the paperwork to the new business department.
The president of MBL, intent on improving cus tomer service, decided that this nonsense had to stop

More then 500 accounts payable clerks matched purchase orders, receivings documents, an invoices and then issued payment. Mismatches were common.

and demanded a 60% improvement in productivity It was clear that such an ambitious goal would require more than tinkering with
the existing process. Strong measures were in order, and the ma nagement team assigned to the task looked to technology
as a means of achieving them. The team realized that shared databases and computer networks could make many different
kinds of information available to a single person, while expert systems could help people with limited experience make sound
decisions. Applying these insights led to a new approach to the application-handling process, one with wide organizational
implications and little resemblance to the old way of doing business.
MBL swept away existing job definitions and departmental boundaries and created a new position called a case manager. Case
managers have total responsihility for an application from the time it is received to the time a policy is issued. Unlike clerks, who
performed a fixed task repeatedly under the watchful gaze of a supervisor, case managers work autonomously. No more handoffs
of files and respon sibility, no more shuffling of customer inquiries.
Case managers are able to perform all the tasks assoeiated with an insurance application because they are supported by
powerful PC-based workstations that run an expert system and connect to a range of automated systems on a mainframe.
In particularly tough cases, the case manager calls for assistance from a senior underwriter or physician, but these specialists
work only as consultants and advisers to the case manager, who never relinquishes control.
Empowering individuals to process entire applications has had a tremendous impact on operatiom MBL can now complete an
application in as little a four hours, and average tumaround takes only two to fivc days. The company has eliminated 100 field office
positions, and case managers can handle mor than twice the volume of new applications the company previously could process.

The Essence of Reengineering

At the heart of reengineering is the notion of discontinuous thinking - of recognizing and breaking away from the outdated rules
and fundamental assumptions that underlie operations. Unless we change these rules, we are merely rearranging the deck chairs
on the Titanic. We cannot achieve break throughs in performance by cutting fat or automating existing processes. Rather, we must
challenge old assumptions and shed the old rules that made the, business underperform in the first place.
Every business replete with implicit rules left over from earlier decades. "Customers don't repair their own equipment".
"Local warehouses are necessary for good service." "Merchandising decisions are made at headquarters." These rules ot work
design are based on assumptions about technology. people, and organizational goals that no longer hold. The contemporary
repertoire of available information technologies is vast and quickly expanding. Quality, innovation, and service are now more
important than cost, growth, and control. A large portion of the population is educated and capable of assuming responsibility,
and workers cherish their autonomy and expect to have a say in how the business is run.


managing it cost $5 million. Since then, warehousing costs have escalated, components have become less expensive, and
better forecasting techniques have minimized units in inventory. But the inventory procedures, alas, are the same as always.
Of the business processes that were designed most took their present forms in the 1950s. The goal then was to check
overambitious growth - much as the typeriter keyboard was designed to slow typists who would otherwise jam the keys.
It is no accident that organizations stifle innovation and creativity. That's what they were designed to do.
Nearly all of our processes originated before the advent of modem computer and communications technology. They are
replete with mechanisms designed to compensate for "information poverty". Although we are now information affluent,
we still use those mechanisms which are now deeply embedded in automated systems.

Moreover, the problem of capacity planning for the process performers is greatly reduced. Subsume information-processing work into
the real work that produces the information. The previous two principles say to compress linear processes. This principle suggests
moving work from one person or department to another. Why doesn't an organization that produces information also process it? In
the past, people didn't have the time or weren't trusted to do both. Most companies established units to do nothing but collect and
process information that other departments created. This arrangement reflects the old rule about specialized labor and the belief
that people at lower organizational levels are incapable of acting on information they generate. An accounts payable department
collects information from purchasing and receiving and reconciles it with data that the vendor provides. Quality assurance gathers
and analyzes information it gets from production.
Ford's redesigned accounts payable process embodies the new rule. With the new system, receiving, which produces the information
about the goods received, processes this information instead of sending it to accounts payable. The new computer system can easily
compare the delivery with the order and trigger the appropriate action.
Treat geographically dispersed resources as though they were centralized. The conflict between centralization and decentralization
is a classic one. Decentralizing a resource (whether people, equipment, or inventory) gives better service to those who use it, but at
the cost of redundancy, bureaucracy, and missed economies ot scale. Companies no longer have to make such trade-offs. They can
use data bases, telecommunications networks, and standardized processing systems to get the benefits of scale and coordination
while maintaining the benefits of flexibility and service.
At Hewlett-Packard, for instance, each of the more than 50 manufacturing units had its own separate purchasing department.
While this arrangement provided excellent responsiveness and service to the plants, it prevented H-P from realizing the benefits of
its scale, particularly with regard to quantity discounts. H-P's solution is to maintain the divisional purchasing organizations and to
introduce a corporate unit to coordinate them. Each purchasing unit has access to a shared database on vendors and their
performance and issues its own purchase orders. Corporate purchasing maintains this database and uses it to negotiate contracts
for the corporation and to monitor the units. The payoffs have come in a 150% improvement in on-time deliveries, 50% reduction
in lead times, 75% reduction in failure rates, and a significantly lower cost of goods purchased.
Link parallel activities instead of integrating their results. H-P's decentralized purchasing operations represent one kind of
parallel processing in which separate units perform the same function. Another common kind of parallel processing is when separate
units perform different activities that must eventually come together. Product development typically operates this way. In the
development of a photocopier, for example, independent units develop the various subsystems of the copier. One group works
on the optics, another on the mechanical paperhandling device, another on the power supply, and so on. Having people do
development work simultaneously saves time, but at the dreaded integration and testing phase, the pieces often fail to work together.
Then the costly redesign begins.
Or consider a bank that sells different kinds of credit - loans, letters of credit, asset-based financing through separate units.
These groups may have no way of knowing whether another group has already extended credit to a particular customer. Each unit
could extend the full $10 million credit limit.

>Coordinate parallel functions during the process - not after it's completed.<

The new principle says to forge links between parallel functions and to coordinate them while their activities are in process rather
than after they are completed. Communications networks, shared data-bases, and teleconferencing can bring the independent
groups together so that coordination is ongoing. One large electronics company has cut its product development cycle by more
than 50% by implementing this principle.
Put the decision point where the work is performed, and build control into the process. In most organizations, those who do the
work are distinguished from those who monitor the work and make decisions about it. The tacit assumption is that the people
actually doing the work have neither the time nor the inclination to monitor and control it and that they lack the knowledge and
scope to make decisions about it. The entire hierarchical management structure is built on this assumption. Accountants, auditors,
and supervisors check, record, and monitor work. Managers handle any exceptions.
The new principle suggests that the people who do the work should make the decisions and that the process itself can have built-in
controls. Pyramidal management layers call therefore be compressed and the organization flattened.
Information technology can capture and process data, and expert systems can to some extent supply knowledge, enabling people
to make their own decisions. As the doers become self-managing and self-controlling, hierarchy - and the slowness and bureaucracy
associated with it- disappears.
When Mutual Benefit Life reengineered the insurance application process, it not only compressed the linear sequence but also
eliminated the need for layers of managers. These two kinds of compression - vertical and horizontal - often go together; the very
face that a worker sees only one piece of the process calls for a manager with a broader vision. The case managers that MBL
provide end-to-end management of the process, reducing the need for traditional managers. The managerial role is changing from
one of controller and supervisor to one of supporter and facilitator.
Capture information once and at the source. This last rule is simple. When information was difficult to transmit, it made sense to
collect information repeatedly. Each person, department, or unit had its own requirements and forms. Companies simply had to
live with the associated delays, entry errors, and costly overhead. But why do we have to live with those problems now? Today
when we collect a piece of information, we can store it in an on-line database for all who need it. Bar coding, relational databases,
and electronic data interchange (EDI) make it easy to collect, store, and transmit information. One insurance company found that
its application review process required that certain items be entered into "stove-pipe" computer systems supporting different
functions as many as five times. By integrating and connecting these systems, the company was able to eliminate this redundant
data entry along with the attendant checking functions and inevitable errors.

Think big

Reengineering triggers changes of many kinds, not just of the business process itself. Job designs, organizational structures,
management systems - anything associated with the process - must be refashioned in an integrated way. In other words,
reengineering is a tremendous effort that mandates change in many areas of the organization.
When Ford reengineered its payables, receiving clerks on the dock had to learn to use computer terminals to check shipments,
and they had to make decisions whether to accept the goods. Purchasing agents also had to assume new responsibilities - like
making sure the purchase orders they entered into the database had the correct information about where to send the check.
Attitudes toward vendors also had to change: vendors could no longer be seen as adversaries; they had to become partners in a
shared business process. Vendors too had to adjust. In many cases, invoices formed the basis of their accounting systems. At least
one Ford supplier adapted by continuing to print invoices, but instead of sending them to Ford threw them away, reconciling cash
received against invoices never sent.
The changes at Mutual Benefit Life were also widespread. The company's job-rating scheme could not accomodate the case
manager position, which had a lot of responsibility but no direct reports. MBL had to devise new job-rating schemes and
compensation policies. It had also to develop a culture in which people doing work are perceived as more important than those
supervising work. Career paths, recruitment and training programs, promotion policies - these and many other management systems
are being revised to support the new process design.
The extent of these changes suggests one factor that is necessary for reengineering to succeed: executive leadership with real
vision. No one in an organization wants reengineering. It is confusing and disruptive and affects everything people have grown
accustomed to. Only if top-level managers back the effort and outlast the company cynics will people take reengineering
seriously.As one wag at an electronics equipment manufacturer has commented,"Every few months, our senior managers find a new
religion. One time it was quality, another it was customer service, another it was flattening the organization. We just hold our
breath until they get over it and things get back to normal." Commitment, consistency - maybe even a touch of fanatism - are
needed to enlist those who would prefer the status quo.
Considering the inertia of old processes and structures, the strain of implementing a reengineering plan can hardly be
overestimated. But by the same token, it is hard to overestimate the opportunities, especially for established companies. Big,
traditional organizations aren't necessarily dinosaurs doomed to extinction, but they are burdened with layers of unproductive
overhead and armies of unproductive workers. Shedding them a layer at a time will not be good enough to stand up against
sleek startups or streamlined Japanese companies. U.S. companies need fast change and dramatic improvements.
We have the tools to do what we need to do. Information technology offers many options for reorganizing work. But our
imaginations must guide our decisions about technology - not the other way around. We must have the boldness to imagine
taking 78 days out of an 80-day turnaround time, cutting 75% of overhead, and eliminating 80% of errors. These are not
unrealistic goals. If managers have the vision, reengineering will provide a way.