Business Process Analysis A Letter from America
Professor V Arunachalam
Distinguished Service Professor
Departments of Material Science and Engineering
Robotics and Engineering Public Policy
Carnegie Mellon University
Pittsburgh PA 15217
and
Dr Eswaran Subrahmanian
Senior Research ScientistEngineering Design Research Center
Carnegie Mellon University
Pittsburgh Pa 15217
August 1995
A report to Engineering and Scocial Science Research Council UK
To enable the reader to access this BPRC report speedily and flexibly it has been organised into the following separate sections
Contents Page
Abstract
Introduction
Reengineering
Corporations and Reengineering
The Chrysler Corporation
Caterpillar
Jet Propulsion
Innovation in Defense Hughes Aircraft
Innovation in Technologies
Government Initiatives
Methods and Tools for BPA
IT and BPR
Japan and Reengineering
Human Resources in BPR
Problems in Reengineering
A Few more lines
References
A report to Engineering and Scocial Science Research Council UK
Section 1 Abstract
This report is on the recent innovations implemented by American companies in the way they manage their business and by the US government in supporting the industrial and technological base in the country American corporations visible to outsiders are generally very large with annual budgets running well above the national budgets of many countries and with a range of diverse operations transcending divisional organisational and national barriers In responding to changes in the global market place they are continually introducing innovations in process and product technologies and in product development and manufacturing cycles It is difficult to enumerate let alone discuss all the innovations that are seen in US business today Instead we shall focus on innovations that are significant and generic for improving business processes This is relevant as more than fifty percent of US firms are medium or small sized and the general competitiveness of US industry depends on them as well In this report we do not discuss the recent trends in financial merger ROD and marketing strategies and processes Instead we discuss only those issues related to business processes that impact the ability of US business to meet the identified market demands in cost quality and time
A phrase now increasingly in vogue to describe the efforts in process improvements is Business Process Reengineering (BAR) Hammer and Champ define BAR as the radical rethinking of the business processes to achieve dramatic improvements in critical contemporary measures of performance as cost quality and speed This characterisation of reengineering is often interpreted in multiple ways resulting in different models and methods of implementation of business process reengineering Reported failure rates of about forty to seventy percent for BAR applications in achieving stated goals can indeed be attributed to the differences in perceived definition of what constitutes reengineering and the level of implementation
In practice implementations of reengineering span from reengineering local process to a complete restructuring the entire organisation Business process reengineering for local improvements have led to the development of analytical models for optimisation of existing processes through simpler procedures and incorporation of Information technology Activity based accounting an American invention is also used in conjunction with process reengineering projects efforts The drive towards BAR in American industries has spawned an industry of consultants and process mapping and simulation tools A brief review of the stateofthe art in analytical methods and tools such as IDEFO SAT BPMAT and Design Process Matrix is also provided in this report
At the other end there are examples of well established organisational structures and processes being totally replaced by new structures and flexible processes Such total re structuring efforts may well include use of cross functional teams retraining and activities related to the management of innovation as integral parts of the business processes well beyond the conventional activities of design manufacture and service of products The difference between successful and unsuccessful firms that use BAR appears to lie more on the scope and coverage of the BAR efforts than on the mere application of tools and methods We illustrate the above inferences by discussing the various models used by some US firms and the experience of a few select industries in adopting BAR There are examples of a laboratory reengineering itself and others from defence industries reengineering themselves to accommodate ending of the Cold War and declining defence budgets
Reengineering depends on people the way they learn their jobs work and collaborate with their colleagues Often this involves learning new trades and work practices and embracing a new work ethic that transcends the narrow specialization that the workers find themselves in Past industrial innovations successful as they had been practiced division of labor on the work force to a degree that almost eclipsed the need for human ingenuity and innovation BPR has brought changes in the way the work force is perceived for effecting organizational changes Most successful examples of BPR are therefore from the corporations that practice retraining programs While bigger corporations have the resources to reengineer their processes and retrain their work force their successes also depend on how effective their suppliers in the value chain are in practicing BPR The problem of implementing BPR and the training of the work force in supporting firms is generally believed to be the responsibility of the individual firms Contrary to general belief the US government is not a passive observer of the restructuring of business processes that are now underway in the country It is intervening actively by providing initiatives and inducements to all firms for continuing education and retraining programs
The US govemment is also intervening actively in an innovative fashion to fill the gaps seen in US companies specially in processing and manufacturing stages These are considered essential to keep American products globally competitive The US federal and university laboratories large and successful as they are have been singularly ineffective in transferring these technologies to US industries Existing laws in place and concerns about patent rights and public knowledge have discouraged close collaboration between the laboratories and industries The US government has introduced multiagency (Defense Commerce NASA NSF and ARPA and Transportation) programs in defense dualuse and civilian sectors supporting short term programs of research in high risk high value manufacturing process technologies The major condition of support of such programs is that the program should be commercially relevant to industry and jointly pursued by laboratories and industries with leadership and matching financial contributions from industry In this report we discusses these initiatives known as ATP (Advanced Technology Program) and TRP (Technology Reinvestment Program) and their performance to date
The success of Japanese firms in capturing a significant part of the US automobile market in the 70's and 80's and their ability to adapt to changing economic conditions without undue changes in unemployment triggered the rethinking of the nature of business operations in American industry A serious search for new models of business began with the scrutiny of Japanese automobile industry by US companies and business theorists This involved studies on process innovations quality management and lean production technologies as practiced by the Japanese Meanwhile Japanese firms are introducing information technology in their work practices that not only preserves much of their organizational and cultural advantages but also incorporates a few US innovations In this sense both are learning from each other
The definition of Business Process Analysis is continually changing It is in the economic jargon both macro and micro details of every process matter as also the overall organizational objectives Technology is not the only driving force for re engineering Economic and cultural practices are relevant as well Knowledge generated by individual companies and business theorists and the experience gained by its application will be the BPR tools and methods for tomorrow Even with a limited repertoire of techniques and relative inexperience in applying them to business practices BPR currently is proving to be powerful approach for organizations wanting to be competitive
Section 2 Introduction
The United States of America is branded as a Superpower when it comes to military strength but the context can indeed be wider In practically all areas of human endeavor it stands on top it has the largest GNP biggest industrial and manufacturing base and an impressive efficient and enviable scientific and technological infrastructure Its output in as traditional an area as agriculture or in as modern a field as information technology is prodigious It is not only a granary for the world but also a demonstration and proving ground for harnessing new technologies or innovations for creating wealth or improving the quality of life Among the world’s 500 largest corporations the magazine Fortune lists 151 as American owned larger than any other country In 1994 alone these corporations earned a profit of more than 140 billion a record among other competitors
As impressive as this is it was actually better especially after the Second World War and in the 1950s and 60s Since then this lead has eroded away in some key manufacturing industries such as iron and steel automobiles and consumer electronics Meanwhile the deficit in trade balance in these areas between total value of exports and the total value of imports by the US has actually increased Since the seventies more areas have been lost to competition many new countries considered in the past as less advanced are emerging as strong competitors
Formerly the US tended to ignore these challenges and attributed the competitiveness of other countries most notably of Japan to their low wages homogeneity of population authoritarian culture workethic and low technology contents It also rationalized the loss by arguing that as the world’s largest technological power it was forever looking for new manufacturing opportunities relegating less technology intensive or laborintensive manufacturing to other countries
However the danger signs were visible in many areas The automobile industry was and still is very special to the US In addition to providing mobility to millions of Americans and linking this vast country it remains the core of American manufacturing and also the crucible for manufacturing and managerial innovations The moving assembly line and management practices empowering and integrating manufacturing centers with customers and suppliers are all the consequences of automobile manufacture But when this industry was overtaken by foreign competitors with their delivery of affordable and reliable cars of higher quality on time concerns were voiced about the productivity and competitiveness of US manufacturing and demands were made for urgent remedial steps A major study on US industrial productivity in 1986 by a distinguished group of sixteen experts including a Nobel laureate economist from the Massachusetts Institute of Technology {BergerB etal 1989} detailed the weaknesses prevalent in US industries not just in macroeconomics terms but in terms of the customer satisfaction quality of products efficiency of production speed of manufacture and introduction of new products and costs This study of 200 companies was the first to identify these gaps in the US system and traced their origin to the age of mass production antitrust laws use of workers as mere skilled operators overemphasis on products rather than on processes and to an environment that has long ceased to exist
This group found these strategies to be outdated in the face of increased global trading emergence of new technologies and their speedy assimilation by many countries and the growth of sophistication among consumers Thanks to new technologies manufacturing and process technologies were making production more flexible streamlined and efficient bringing in a quality previously thought as unachievable and at a speed considered unattainable The workforce was no longer a collection of skilled individuals but groups with competence transcending many areas of manufacturing and motivated by teamspirit delegated power and vested authority All these according to this study were missing in the American industrial and manufacturing scene Even in the 1960s the management guru Peter Drucker{1969} in a deeply perceptive book The Age of Discontinuity lamented the lack of any change in the structure of industrial organizations in step with the impressive growth of economy and technologies Small midcourse corrections were introduced in the well established but outdated structures to provide continuity when radical reforms and pathbreaking restructuring were in order
This report discusses one major business process innovation that is now sweeping the United States consuming the traditional but increasingly inefficient ways of doing business Reengineering has been the banner of this change in business practices This innovation is truly a homegrown one and as we shall discuss later not an import As with all things American its sweep is vast its opportunities are immense and the dangers of failure real In this report we first provide the scope of this innovation its impact on business and the mutations it is undergoing through case studies This is followed by a summary of analytical tools used in this innovation Subsequently we examine its consequences in governmental policies and human resource strategies We then briefly summarize the differences in the practice of reengineering between Japan and the United States since the US is concernedsome would say excessivelywith the way Japan conducts its business In summary we see an evolution even within a short period of a few years as reengineering is changing rapidly losing some of its harddoctrinal stances and learning to work with new technologies But more changes are needed some urgently so in areas such as human resources Rightly or wrongly Business Process Reengineering has come to be identified with Big People Reduction This image has to be shed if reengineering is to be accepted by the majority
Section 3 Reengineering
Reengineering is not the first and the only innovation in the business processes Initially concepts and practices such as Total Quality Management (TQM) concurrent engineering (sometimes referred to as simultaneous engineering) just in time’ inventories timecompression’ and lean production have been introduced as remedial measures Studies by Kim Clark and Fujimoto {Clark K and FujimotoP 1991} on the comparative performance of automobile manufacturing in three continents or the adaptation of Deming’s teachings on quality management {Deming 1986} or Kaizan its Japanese version have helped US corporations to introduce improvements in their manufacturing These even when successful are only of limited applicability and do not substitute a radical restructuring that Drucker advocated or the group from MIT recommended The paradigm shifts in manufacturing technologies as identified by Jaikumar {1988} have still not been accommodated by the required revolutionary structural changes of industrial organization Majority of the improvements as we noted earlier in spite of effecting continuous improvements in many areas of production have continued to preserve organizational structures with their divisions rules of business command and control systems intact instead of change The corporate culture still regards organizational hierarchies as sacrosanct more than its relationship with the customers It is in this business practice context that reengineering has emerged as a more holistic alternative
A Definition
The goal of reengineering or to be exact Business Process Reengineering (BPR) is its aim to destroy the organization as it exists and recreate a new one that focuses exclusively on business processes In Schumpeterian terms BPR is a creative destruction process removing function based vertically structured hierarchies by efficient process centered independent and empowered horizontal structures As a point of reference we define BPR offered by Hammer and Champy {HammerM and Champy J 1993} in their book Reengineering Corporations as the radical rethinking of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost quality and speed
This definition effectively rules out the incremental process improvements brought in by quality management or concurrent engineering as reengineering Nevertheless these improvements can be subsets of the entire reengineering process and the incremental improvements they bring in may even turn out to be useful determinants We shall therefore cite instances of such improvements in this report as part of analysis of the reengineering experience in American corporations
Modeling and Simulation of Processes
Reengineering consists of restructuring all the processes in the business so that they become efficient transparent and integrated with other processes in the system seamlessly In turn this requires that every process in the existing system be first scrutinized to assess its performance and to delineate its crossfunctional role before it is eliminated modified or replaced by a new process For such analysis versatile and efficient tools and simulation techniques are critical Many modeling approaches have been used including a recent one based on Systems Engineering{BhaskerRetal 1995} While most business processes are complex and are not easily amenable to analytic modeling without approximations simulation models and methods capture complex processes more effectively and can be subsequently validated and optimized In this report we therefore discuss various analytic methods simulation techniques and their tools that are now available for BPR
Information Technology and Reengineering
Information Technology (IT) is perhaps the most effective enabling technology for reengineering It helps in meeting the objectives of reengineering in three ways by providing information across functional levels and establishing easy communication improving the performance of the processes itself and also by helping the reengineering effort by modeling optimizing and assessing its consequences The veritable richness of this single technology has led many to interpret reengineering as the application of IT to business processes We shall discuss the role IT plays in some American reengineering efforts
US Corporations and Reengineering
In this report we shall cite three recent examples of US manufacturing firms that have transformed their organizations entirely through reengineering In addition we shall discuss the example of a US defense contractor venturing into a civilian areas of business and reengineering the entire process to introduce a new and a competitive product and service American business is not exclusively manufacturing servicing contributes a major component to the GDP and to employment generation In 1991 76 percent of US output came from services and the value it added to the US economy is about 70 percent It also contributes some key elements to manufacturing vendors and customers are served by this industry We shall therefore include some examples of reengineering efforts in this area that have turned out to be successful
Because of the very scope and size of the efforts demanded by reengineering the examples are still very few though there are numerous instances of companies reengineering a process or two no doubt hoping that the visible success of the efforts would make reengineering more palatable
The Role of Technology
Reengineering does not claim to substitute for either a sound business strategy product or technology It is only a mechanism for radically improving the performance of the business processes for the vendors customers and products But by centering the whole concept on processes reengineering is inextricably linked to technologies not just to information technology that provides the necessary tools for the transformation but also to other technologies that are necessary to the processes This is of some importance to the US because its corporations tend to concentrate more on developing products than on processes {Mansfield E 1988} Antitrust laws and concerns about cartels and monopolies have also prevented the US corporations from cooperating with each other This is a sore point with many American companies They complain loudly about the extent to which their foreign competitors are able to get support from their governments or to pursue collaborations with competitors within their national boundaries to jointly develop new technologies At last the US government is waking up to this challenge The perceived difficulty of acquiring semiconductor chip manufacturing equipment from Japan induced the US lawmakers who normally frown on corporations coming close to each other cooperate in setting up an organization SEMETECH for manufacturing semiconductor processing equipment within the country {RandazzeseL 1994} Government intervention has grown further with the two major US government R&D organizations National Institute of standards and technology (NIST) and Advanced Research Project Agency (ARPA formerly DARPA) contracting research and development programs on manufacturing technologies A major condition for this support is that these programs be jointly pursued by research organizations and US companies with the companies playing the major role Even though this initiative may not fit into the structure of reengineering as is perceived today we believe this collaboration will have profound impact on the future strategies of US corporations during restructuring In effect US Companies will have the added bonus of choosing from new sets of process technologies We shall report on some instances of the initiatives taken by the US government in this effort
Human Resources
The role of human operators is radically altered in reengineering Instead of specialized skills a broad range of competence is called for A keyword in reengineering is flexibility and this applies to humans as well Functionally based vertical hierarchies are replaced by horizontal structures where the positionbased power is replaced by participationbased authority This shift provides the scope for extensive delegation of power and responsibility in reengineering this is one of the reasons for the present US administration coming forward with fiscal incentives for worker retraining called reskilling
In spite of the promises of empowerment there is a genuine concern among workers about reengineering While a flat hierarchical structures with minimum designations appear to be good for generating the enthusiasm of workers it also frightens them as there appears to be few avenues for promotion and growth Only lateral displacements are visible as also the spectre of downsizing We shall discuss the consequences of this concern in some instances of reengineering and the after effect of this feedback among the proponents of reengineering
What is Japan Doing
Companies opt for reengineering to restore their competitive edge in their line of business But this experiment is performed in many countries with techniques suitably altered to take into account the different environments in which they operate A major question usually discussed among the US academics in business management is the performance of Japan We shall briefly discuss how the Japanese corporations restructure their business in relation to what is happening in the US This is of some relevance as rightly or wrongly US perceives Japan as its principal competitor in many areas of high technology where it wants to remain on top Hence trade disputes are not easily resolved and are taken to the highest levels of political leadership seeking favourable settlement
Section 4 Corporations and Reengineering
We shall first discuss three specific examples of reengineering mainly in manufacturing Each of these cases exemplify the need for radical restructuring of the organization with attendant emphasis on information technology human resources open communication flow supplier reengineering and education The first the Chrysler Corporation one of the big three of the US auto giants probably is the most studied and visible example of radical structuring in the auto industry that included a completely redesigned workplace to accommodate the new process and philosophy The second case is Caterpillar once an unchallenged earth moving equipment manufacturer In 1984 this company found itself with a billion dollar loss and intense competition from the Japanese companies Komatsu and Hitachi that challenged its previously assured old homemarket Caterpillar had to restructure its whole organization radically and the results have been very successful it reaped a record profit in 1994 But the routes followed in this restructuring by Caterpillar and Chrysler have been very different The third case is a government space research laboratory Jet Propulsion Laboratory that has restructured itself in the face of extensive cuts in defense and space programs We shall analyse these cases using a structure that traces the history of the firm the focus of reengineering and the routes adopted for its implementation Theses will include restructuring both at the organizational and workplace levels use of information technology and human resource management
Section 5 The Chrysler Corporation
The history of the Chrysler Corporation one of collapse and revival through reengineering has provided a major impetus for this business innovation After a well publicized government bail out when its bankruptcy was imminent in the 70's the initial turnaround of Chrysler was mainly fueled by sales the marketing strategies of Lee Iacoca and the fortuitous demands for its mini vans All these took place without major changes in the structure or the functioning of the company In spite of these changes the component based approach to automobile design and manufacture still required a 45 year cycle More it was burdened was with too many car designs and no ownership of the models within the firm To understand its problems Chrysler undertook an eighteen month study similar to that of Xerox {Jacobson G and Hillkirk J 1987} first by benchmarking Honda's development cycles Mitsubishi's strategies through the diamondstar (MitsubishiChrysler) collaboration and later the successful Jeep operations of the newly acquired American Motors
Learning from these benchmarking experiments Chrysler embarked on a creativedestruction process by instituting dramatic cultural changes that destroyed the functional silosbased vertical organization and creating a reengineered workplace This workplace centered around the four cross functional platform teams for large cars small cars mini vans and Jeep vehicles and trucks The objective was further sharpened to address only the American market a market that was lost to the Japanese and its US rivals especially the Ford
The results of the reengineering efforts were beginning to show in 1992 In 37 months from design Chrysler had in production the LH series of cars using the platform team organization This was done with 740 people as opposed to 1400 previously for similar size cars The engine development time for a 35 liter option was reduced from 240 weeks to 187 weeks {Gardner G 1993 IMB 1993} Chrysler then embarked on a development of a compact car Neon as a direct competition to the Japanese imports Chrysler developed Neon on its own without any foreign collaborator a first for an American car company in the small car category The car was in production in 31 months It is reported that the next generation LH car would take only 24 months In 1994 Chrysler was adjudged as the lowest cost producer of cars in the world{Taylor A 1994}
Design and Production
One of the corner stones of Chrysler's reengineering program is the 15 billion dollar Technology Center at Dearborn Michigan Chrysler used this center to perform its first cross functional team experiment for the sports car Viper with a goal to reduce the designtoproduction time to 36 months With this experience Chrysler Technology Center (CTC} became the hub of Chrysler's new reengineered corporation The layout and architecture of the Center's building was designed with the objectives of breaking functional barriers by increased facetoface contact of the members working in product platform teams and by the inclusion of inhouse manufacturing and testing facilities similar to those in the production plants The building was organized by a floor per product platform with a common manufacturing facility at the ground floor The layout plan for the floor corresponding to each platform is identical Thus for every person responsible for a functional task in a platform hisher counterparts in other platforms were spatially located either exactly above or below in their corresponding platforms {Gardner G 1993} The workplace design catered to this unique arrangement A major objective of reengineering was to encourage and maximize communication between the team members from all functional specializations This was achieved by them sharing the same floor and through the existence of technical clubs Other common needs across platforms were met by the setting up of three centersfor scientific testing data and information integration and technology and management
In effecting this radical cultural change Chrysler encouraged the teams to challenge the system and try out new ideas without fear of failure In the new environment Chrysler empowered the process teams to undertake simultaneous development delay decisions until the last identify critical paths and eliminate nonwork elements in the processes The implementation strategies included benchmarking redelegation of decisions to appropriate levels and requiring that all decisions at the interfaces be made by consensus
Supplier relationships
Following the Japanese model Chrysler insisted that its suppliers were colocated allowed to participate from the start of the design and were also provided with the parts requirements right from the layout While designing the LH series Chrysler reduced the number of suppliers to a mere 200 from a previous 600700 and the total supplier base from a few thousand vendors to less than 1500 To maintain continuous communication with the suppliers for improving product quality and cost the purchasing department instituted a program with suppliers for cost reduction ideas Chrysler thus realized over 400 million as permanent annualized savings
Advertising and Marketing
With the overall changes in the structure and operation of the company to reduce cost it is also necessary to reengineer all the local processes Chrysler for instance reduced the number of steps in its approval process for artistic media and research and reduced the approval time from 68 weeks to 2 weeks {Serafin1993}
Information Technology and Reengineering
Chrysler has been steadily introducing information technology even before the completion of radical restructuring {Seigal 1986} It first began by implementing an integrated information system for sales supply and design with a parts distribution scheme that allows a dealer to enter a part request on a computer that automatically forwarded it to the corporate computer The depot computer received these orders and turned them into work assignment directly to each workstation Directed by a personal computer individual workers fill 16 orders simultaneously by picking parts from three horizontal conveyors and a sorting station
For design and analysis Chrysler is extensively using CADCAM systems that are integrated not only within the company but also with the outside suppliers as well A combination of super computers mainframes and workstations provide the computing environment to perform a range of design analysis activities including finiteelement analysis aerodynamic and impact simulation programs assist and test NC programs solid modeling and aerodynamic analysis {Mills 1987}
Chrysler integrated its IT in manufacturing with advice and assistance from Caterpillar and Boeing Some innovations in this area include an automated storage and retrieval system to handle vehicle bodies in sequence and justintime at two plants that produced Dodge Dakota pickup {Forger 1993} For the LH series cars the Bramelea assembly plant in Canada installed a mono rail system with diagnostic equipment that tracks with cars greatly increasing quality and flexibility {Auguston1989} It has also provided computer based diagnostics systems to its service dealers to help remedy problems in the first attempt itself
Human resources and training
Radical cultural changes require that workforce also adjust to changes in the workplace and the process While designing and producing Neon Chrysler extended its retraining program to over 200 assembly workers three years before production {MD 1994} to educate them on empowerment As the demands for training grew Chrysler contracted external firms to run structured training programs for its workers in newly automated assembly plants {Green and Spencer 1993} Recently it has also expanded the training program to include its suppliers and dealers using some of the newly available IT training aids
In the characterization of Womack and Jones{1994} Chrysler is moving towards a lean enterprise that incorporates all aspects of reengineering from the lowest level where the number of steps in the process are reduced to creating a radically new process by the clever use of information technology It is a holistic process that Chrysler has embarked on and this has clearly produced dividends with record profits in 1994 The strategy of combining empowerment through training delegation of decisions and open and rapid communication flow between concerned parties in designboth horizontally and verticallyhas indeed worked In the words of the CTC director We did not just imitate the Japanese but brought it to a high polish {Moskal 1994}
Section 6 Caterpillar
The reengineering of Caterpillar a giant in the earth moving machinery is 10 years old and was triggered by a billion dollars loss in 1984 after three year run of record profits from 1981{Hooker93} In the past Caterpillar’s expansion and profits came with the introduction of new products and was essentially growth driven the company’s products increased from a modest five to a record three hundred in 1985 But the Japanese competition eroded the profits first by offering quality products at lower costs and later by the opening of a number of centers for distribution and service in US
Caterpillar met this challenge by a radical restructuring of the entire company that included all its business processes Caterpillar’s strategy can be rationalized under three broad headings downsizing the vast and widespread business empire investments in new technologies both for manufacturing and for increased and efficient communication and implementing the new business process to replace the old functionbased structures
The Creative Destruction Phase’
The first stage was a painful process and Caterpillar tried to implement that fast to minimize demoralization This involved a closure of nine plants and laying off 28000 workers in four years By 1993 there was a further reduction of 10000 workers Caterpillar’s operation was comprised of 36 manufacturing plants 7 product engineering design control centers and 22 parts distribution centers located in 10 countries To manage restructuring effectively the structure was first reorganized to include only 13 product centers and 4 service centers distributed worldwide
The Technology Investment Phase
Caterpillar’s strategy was an emphasis on technology as an integral part of its work and the workplace and so invested about 18 billion in plant modernization and introduction of new technologies both in manufacturing and in information technology systems The new manufacturing systems included for instance computerized flamecutters unmanned cranes and other process innovations that reduced the time to fill orders from 20 to 8 days inventories by 50 percent and manufacturing space by 21 percent The IT systems included integrated shareddata management systems to facilitate communication among crossfunctional teams and a global communication network that linked the service centers effectively
Using computers Caterpillar developed a number of analytical techniques that effectively reduced the costly and time consuming physical testing and also shifted the testing phase during the early stages of development when costs would be lower For instance a full scale fatigue testing is expensive both in cost and in time and could take anywhere between 6 to 8 months and the test had to wait until the models were ready By resorting to analytical techniques Caterpillar was able to reduce the number of full scale tests from 45 in 1980 to 3 in 1993 The costs have also reduced with analytical techniques costing less than 50 of the full scale testing Caterpillar has also introduced virtual reality to solve some of the ergonomic problems in the cabin compartments such as visibility ease in the use of controls and other user driven requirements
The New Business Processes
Caterpillar used concurrent engineering as its main theme in restructuring and identified six critical success factors (CSF) for its reengineering These included the creation of a concurrent environment free flow of information among teams implementation of an electronic master for products and processes changes in policies and procedures predictive cost methods and management of cultural change and team dynamics
The shared electronic data system facilitated increased communication among crossfunctional team members even though they were not colocated The team members were fully empowered and were encouraged to arrive at decisions that involved various functional elements through consensus
A major test for this approach was to reduce the time involved in designing and manufacturing a new product from the then period of about seven years to about twenty months The success can be assessed from the fact that in 1994 Caterpillar reduced this period to a thirty nine month cycle Another test is the number of changes introduced in the new product initiative Changes when introduced in the initial stages are not very costly but become very expensive in the final stages That is also the period when a large number of changes are forced into the design for instance in the last three months of development every change costs on an average about 1000 dollars and the development team had to deal with about three hundred changes With the new concurrent engineering initiative these changes have reduced significantly
A major component of reengineering is training and Caterpillar took a major initiative in integrating its suppliers as allies in the CPPD program By educating its suppliers in quality improvement methods as a part of its Quality Initiative and by organizing formal and structured seminars that were customized to the needs of suppliers Caterpillar extended its restructuring to its supplier base as well With a similar initiative it also instituted dealer training to improve its customer services By structuring their reengineering initiative to center around technologies and by encouraging a total team connectivity through IT Caterpillar has been able to provide a unique American example that is different from Chrysler which learned its first restructuring lessons at least initially from Japan
Section 7 Jet Propulsion Laboratory
Jet Propulsion Laboratory (JPL) located in Los Angeles is a premier space research laboratory and was responsible for some major advanced space spectacles such as Mariner Voyager the Hubble telescope and the Galeileo space flight systems JPL executed these programs on a requirementsdriven basis with sequential stages The project teams were organized hierarchically and functionally This model of design worked well when the budgets for space flight programs were in billions of dollars and the allocations appeared almost inexhaustible This situation in recent years has changed dramatically with large cuts in the budget and increasing criticism of NASA’s manner of managing such programs These changes have forced JPL to reevaluate its role in the design and production of space exploration vehicles JPL has taken a major initiative altering its strategic sights from the mega projects of the past to defining and executing a series of small and moderate space missions that are scientifically exciting publicly engaging and financially affordable {Casini 1993}
JPL much like Chrysler is pursuing reengineering by a radical cultural change and workplace design The theme for change was to move away from engineering the performancebased requirements to one based on capability and executed by empirical and budget driven designs To institute these changes JPL created an implementation development office with a mandate to improve its capability to execute low cost rapid development projects by developing innovative technical and management processes This department was also entrusted to build and manage a Flight Systems Testbed and Project Design Center that would become the future workplace This project was started in the early 90's and the Design Center scheduled for completion in 1996 The other objectives of this initiative include a mission focused structure introduction of major cultural changes in work and a redistribution of functional roles The organization was flattened with design teams configured as smallsized functional teams and colocated in the same physical floor The design was now to be driven more by costs and a total systems approach as opposed to requirements directed component based approach
The physical architecture of the Flight System Development Center at JPL as in Chrysler is meant to reflect the new organizationreplacement of the old functional silos with multidisciplinary cross functional teams The physical design of the Center is being fitted with the latest communication equipment and computer network to facilitate the communication paths between project members and computerresident tools and data bases Workspace for each module of the spacecraft reflects the composition of the disciplines needed for the module (eg telecom avionics mechanical) and is physically arranged as a pentagon seating five persons These workspaces for the modules are in the same physical floor of the Center and are very well connected to the communication and computer networks The Center also hosts many prototyping facilities for the Flight Systems Test Bed a virtual test bed with an array of interconnections with functional and testing laboratories
A main objective of the process analysis at JPL is to identify acquire or develop the software tools required for the new parallel Project Design Center Process The approach adopted was based on an inputoutput description of the products used and products created by each functional node A critical parameter is the timing of inputs from other nodes to a particular node and this is being identified for the processes This analysis will serve as the basis for the integration of computer aids and information system for a smooth flow of information This when in place will facilitate a pathbreaking parallel capabilitiesdriven design process
The process at JPL is still underway and the results of this dramatic process and work practice changes are yet to be known If Chrysler's experience of workspace integration were to be a reference point then JPL's new flight systems development center with its parallel processing capabilities will succeed in producing cost effective space crafts
Section 8 Innovations in Defense Conversion Hughes Aircraft Co
Hughes Aircraft Co owned by General Motors is a major defense contractor working on projects related to aerospace and electronics When there was a downward trend in defense contracts Hughes restructured its core competencies to identify a niche in the civilian market and chose satellitebased digital TV Hughes assessed that it had all the necessary technologies for this venture such as digital data compression coding and decoding of signals Even though Hughes could have sourced many of the necessary technologies and components for the system from inhouse it chose outside vendors because of the cost advantages a civilian producer would have over its own divisions
Hughes thus formed a collaboration with an antenna and TV company RCA Thomson as its exclusive supplier for decoding boxes and small satellite dishes It also entered into a contract with Sony for manufacturing digital video tape machines for which Hughes did not have the expertise These machines were still under trickle production at Sony but the demand for these machines in numbers accelerated their production and brought their costs down Further contracts with film distributors such as Walt Disney ensured that there would be programs for its 175 channels Starting this project in 1990 Hughes Aircraft has shipped 700000 systems valued at 750 million in just four years Hughes estimates that by the end of this decade there would be 10 million sets with a revenue of 4 billion and an operating profit of about 1 billion
This initiative by Hughes has all the ingredients of reengineering The company assessed its core competence as satellite based systems and not as defense manufacturing and clearly assessed the process boundaries where it was competent Instead of using its own divisions that would have driven up the costs and reduced the output it chose at its principal collaborator a company that had all the necessary expertise in manufacturing antennas and decoders for the civilian market Similar collaborations with Sony Walt Disney and Parent Studio programs ensured excellent quality transmission and rich program options to choose from This has proved to be a unique example of the company achieving its competitive advantage over cable networks that are still handicapped by limited program options and mediocre quality of images and a lone satellite based rival Primestar that also did not have a large repertoire of programs or digital imaging Since eventually this service would be taken over by a terrestrial optical fiber cable network (because of the quality and range of options available to the consumer) it was essential that a satellite based digital TV be made available as quickly as possible With a subscription of 30 per month Hughes has already enlisted 500000 subscribers If Hughes had not taken this initiative and restructured its business process for the civilian market it would have joined the ranks of other defense manufacturers waiting to bid for infrequent contracts from the Pentagon
Section 10 Innovations in Technologies
Technologies in Business Processes are used in two areas in the offices and in the workplace Technology it is said is knowledge and information technology is knowledge of how to produce and use knowledge more effectively {Simon 1977} As we mentioned earlier in the report information technology is often perceived to be just an enabling technology for reengineering businesses and is occasionally criticized for its excessive involvement in process reengineering But its contributions can be far reaching including areas associated with redesigning the processes Hammer and Champy {Hammer M and Champy J 1994} discuss the reengineering experience of Kodak when it developed a new model to challenge Fuji’s singleuse camera To cut the development time Kodak developed an integrated product design data base in its Computer Aided Design and Computer Aided Manufacture {CADCAM) system that allowed the entire design team to be aware of all changes made to the design by individual designers This constant updating enabled all members of the design team to respond to such changes as and when needed without waiting for individual alterations to be complete
Boeing prides itself in calling its latest 777 aircraft a paperless design The entire design modeling and simulation was done on computer thus doing away with reams of paper drawings and specifications This was made possible by the use of advanced CADCAM software packages such as Catia Components are designed using computer drafting tools and stored in a central design database These designs are then analyzed for structural and aerodynamic loads using finite element and analysis software The part geometries stored in the design database are used to create a digital mockup of the entire aircraft revealing to the designers the integration of the different subsystems This has eliminated the need to make costly wooden mockups until now an essential part of the design process and reduced months in the design and development phase when various individual parts are redesigned or suitably altered to integrate smoothly in the mockup The manufacture of components is simplified by the automatic generation of NC part programs from the geometries stored in the design database
Varian a high technology electronics and vacuum systems firm has had mixed results in implementing reengineering {Business Week August 1994 pp 5459} to it operations We shall be discussing its experience in a different section Here we would like to cite that Varian has saved about 95 hours in the setup time by redesigning the parts that incorporate better technologies to make them fit easily in its medical radiological equipment and by learning to package the systems better This alone in savings is worth 50000 per hospital and Varian itself has saved about 18 million
The Customer Service Division of the Ford Motor Company {Jacob 1995a} is reengineering its entire organization to focus on increasing customer satisfaction Among the various core processes identified for reengineering the division has chosen to concentrate on designing and manufacturing easytorepair cars and has doubled staffing in upstream engineering an unusual response for a reengineering need
Most of often the examples quoted of reengineering are from the office vendor and customer ends of the business and a major concern of American industries in manufacturing viz the unavailability of uptodate process technologies has not been discussed until now in any detail in the business literature However things are not still and a great deal of changes are happening The US government’s intervention through support of R&D programs in areas of manufacturing is expected to influence if not actively promote interaction between research organizations and industries in the country In this section we discuss these initiatives especially those of the National Institute of Standards and Technology (NIST) and Advanced Research Project Agency (ARPA) in some detail There is a review on SEMETECH a consortium established as a collaborative venture between the US government and American semiconductor industries designed to defeat a possible Japanese monopoly in semiconductor chip manufacture {Randazze 1995}
Section 11 Government Initiatives for Reengineering American Industry
National Institute of Standards Programs
In the late 1980s the US government took a major step by intervening’ in strengthening and reengineering the country’s industrial base using the National Institute of Standards and Technology (NIST) as the agency for directing the change The initial programs included the now well known Malcolm Balridge Award established by and Act of the Congress in 1988 By setting out guidelines and the measures required for consideration of this award NIST encouraged both smallsized and large firms to improve their management of quality leadership human resources and information analysis While this award has had the desired publicity and encouragement two other programs also run by NIST the Advanced Technology Program(ATP) initiated in 1990 and the Manufacturing Extension Program(MEP) started in 1988 have also been recognized though less well known to the publicfor providing direct help to small medium and even largesized industries
The broad objective of ATP is to support the development of future products and industrial processes ATP is roughly a 500 million costshared program with investments specially reserved for the development of preproduct technologies that require companies to invest additional resources for refining and further streamlining their technology for market For a program that is barely four years old the results are impressive over 47 firms participating in the program report that they have reduced the time for the development of new products by over a year sixty percent of the participants report new alliances between firms with two to twelve partnersan event rare in the US Over one half of the awards have gone to small firms and many of them hope to add new employees within five years The 177 strong project portfolios covers a wide range of technologies from materials and manufacturing to biotechnology energy and environment In 1994 the ATP program initiated a focused program strategy that concentrated on industry identified technical and business goals achievable through interdependent R&D projects carried out over several years Input for these programs was solicited through workshops and white papers submitted by industry labor unions and universities
The other major NIST program MEP is targeted towards providing hardtoget technical assistance to 381000 small and medium manufacturers who account for half the manufacturing output and 12 million jobs The objective was to restore the declining productivity of the small and medium size industries that have been using outdated technologies and processes and to discourage large corporations transferring such activities to developing countries The program started with 3 centers in 1988 and has grown in 1995 to 42 centers the objective is to reach a 100 center network that would cover the entire country Currently 34 centers average about 20 partners per center MEP’s scope of support includes quality inspection (19) business system management (15) process improvement (13) market development (10) CADCAM (7) plant layout (7) human resource development (6) product or design development (6) EDICommunication (3) automationrobotics (2) and others (6) {NIST 1995} The following excerpt from the NIST progress report {NIST 1995} is an excellent example of the results achieved by this program When the Boeing Co told Manufacturing Development Inc (MDI) that it needed to meet the aircraft maker's stringent D19000 quality standards or risk losing its largest customer's business MDI Vice President Michael Castor knew the company urgently needed outside help MDI a 30person sheet metal fabricator located in Cheney Kansas called the NIST MidAmerica Manufacturing Technology Center The extension center's technical staff provided MDI employees with onsite training in statistical process control and they helped MDI secure a state grant that paid for half of the training costs MDI earned supplier certification from Boeing while improving its overall operation The company estimates for example that it will achieve a 50percent reduction in scrap reduce rework by 25 percent and realize annual savings of 132000
Since we started writing this report there is news of NIST closing its ATP programs because of the reluctance of the Republican majority Congress to allocate funds for such programs The Republicans appear to believe that such programs should be the responsibility of private business and the government should not have a direct role The ensuing battles in the US Congress promise to be interesting for this would be a rare instance when private industrieswho normally protest against any form of government’s controls or interventionmay be tempted to support the NIST initiative much against the wishes of the Republicans
Department of Defense Programs
Traditionally ARPA (formerly DARPA Defense Advanced Research Projects Agency) has funded defense industry related research In 1993 President Clinton unveiled the Technology Reinvestment Project(TRP) a first cross departmental program administered through ARPA with a broad objective to stimulate the transition to a growing integrated national industrial capability that provides most advanced and affordable military systems and the most competitive commercial products{TRP1995} The TRP funding addressed technology development deployment and manufacturing education and training The program has expended 12 billion dollars in the last two years The goals of the TRP project are to encourage industry to form partnerships needed to create a new generation of dualuse products In effect the military sector will reap the benefits of economies of scale generally seen only in the civilian sector of the economy and the insertion of new technologies rapidly and cost effectively It is a truism that military because of their perceived performance requirements is slow to accept and introduce new technologies This is seen specially in information technology where achievements in the commercial sector are far more impressive than in the defense sector Examples of dual use include infra red sensors for night vision radar systems optoelectronics digital imaging and telemedicine
TRP unlike ATP is a costshared program emphasizing partnerships and industrial commitments To date the industry has contributed about 60 of its resources to offset costs The objectives of the TRP program is to ensure that process and product technologies are available offtheshelf when needed by the defense industry TRP for instance has spent over 60 million in a manufacturing education training program The objective is to address the training and retraining needs of the displaced defense workers and improve the overall education emphasizing practice oriented degree programs at the graduate level
Since we started writing this report ARPA has also begun an internal process that looks very much like reengineering In order to make its programs acceptable to the new Congress ARPA is reexamining its priorities between long term goals and shortterm objectives While the picture is yet to become clear it appears that ARPA’s initiatives in manufacturing processes and use of information technologies are likely to increase For the present ARPA is engaged in discussions and meetings with its contractors
Section 12 Methods and Tools for Business Process Analysis
Restructuring existing organizations to new organizations require an understanding of the current structure and processes of the organization Understanding the existing process and structure setting the objectives for the new structure and predicting the effect of the new structure and process have given rise to a number of structure methods covering different aspects of the process reengineering task Some methods aid topdown approaches to reengineering while others use bottom up analysis Many successful reengineering cases use a combination of methods to set goals restructure the workplace select processes for improvement describe the selected process quantify the process improvement selection and to implement and institute a continuous improvement process {Elzinga et al 1995} In this section we review the methods used at different stages of reengineering and the stateoftheart tools that have their origins in the US
The top down approach
Benchmarking
Benchmarking is a process for searching new methods tools and practices to establish operating targets and productivity programs within a company based on the best practices in any industry {Champ 1989} An excellent example of benchmarking as the prompter for process reengineering is from Xerox {Jacobson and Hillkirk 1987} Several firms have used this method to set high level quantifiable goals As we pointed out in the Chrysler example that company used extensive benchmarking from its partners Mitsubishi Motors and Honda motors in setting its operating targets This stage led to Chrysler restructuring not only the processes but also the workplace Xerox on the other hand reengineered the process through small product teams and by restructuring the bureaucracy Benchmarking is a method that can be used with advantage effecting continuous improvement as well
Critical Success factor (CSF)Methodology
CSF was introduced by Mckinsey and Company in 1950s as means to identify key areas where improvements are necessary for achieving the goals set through benchmarking {Daniel 1961 Elzinga DL etal 1995} This approach has two steps first to establish and classify CSF through interviews with the top management and the second to establish measures to monitor the success factors These include customer satisfaction free flow of information implementation of an electronic master for products and processes predictive cost methods and the management of cultural change and team dynamics
Identification of critical success factors leads to the next stage in process reengineering In all the examples we cited earlier in this report the identification of overall goals benchmarks and critical success factors led to radical restructuring of the organizations and creation of entirely new processes Chrysler and JPL on the one hand embarked on the redesign of the workplace in order to achieve the CSF corresponding to free flow of communications Caterpillar on the other hand instituted the goal of creating a shared electronic master of product and process to facilitate free flow of information to compensate for its geographically distributed business
Many firms instead of adopting such radical restructuring approach reengineering by an incremental processtoprocess basis In this approach the question is one of selection of the process Methods used for the process selection range from informal approaches such as brainstorming to formal ones using multiattribute utility theory or other decision analytic approaches such as Analytical Hierarchy Process (AHP} {Saaty T 1980} AHP has been used extensively in a number of decision making contexts {Zahedi M 1986} and allows for the hierarchical structuring of a goal with its attributes subattributes and alternatives corresponding to such subattributes Input data are collected from the participants in the form of pairwise comparison of decision elements AHP uses its logical reasoning and other mathematical models in determining the relative order of priority among the alternatives and is available as a software package
The bottomup approach
A bottomup approach to redesigning an artifact (product or process) requires the understanding of the existing structure and its current performance As the focus of reengineering is the process a clear description of its structure (modeling) and an analysis of its performance (simulation) are essential both to communicate and verify the model and its behavior Often the models are purely descriptive (static) and are not amenable for a behavioral simulation of the process This makes the modeling of the process difficult
Descriptive modeling of business processes
The popularity of process modeling especially the descriptive formalism can be traced to the efforts of the US Department of Defense as part of its Integrated ComputerAided Manufacturing Program (ICAM) It was responsible for the creation of a standardized subset of SADT (Structured Analysis and Design Technique {Marca and McGowan 1988} under the name IDEF0 (ICAM Definition Method Zero) {SofTech 1981} Besides IDEF0 several modeling formalisms have been devised or borrowed from other disciplines to create process modeling tools These include use of Petri nets discrete event simulation object oriented modeling and data flow diagrams IDEF0 is one of the popular methods for the process description and there are several commercial tools now available based on IDEF0 formalism {Kalzinga et al 1995} IDEF0 is a graphical representation that allows for the description of activities as boxes and links{SofTech 1981} The links are used to represent physical objects or information needed to be produced by an activity A generic activity in IDEF0 is represented as box with four directional links input output mechanism and control The position of these links are fixed For example input control and mechanism are incoming links placed on the right top and bottom the box IDEF0 has a simple syntax and allows for the hierarchy of processes representation at different levels of abstraction
The Design Process Matrix originally developed in 1967 has recently been rediscovered and refined {Eppinger S etal 1994} The primary representation in this approach is a matrix The row and columns of the matrix are activities The entries in the matrix correspond to the flow of information between activities The activities are not grouped based on functional and organizational boundaries but only on information interdependency This matrix is necessarily sparse and is reordered by the use of precedence ordering and partitioning of the design process (DP) matrix The objective in this method is to reduce the dependence of information flow from other activities to any given activity so as to allow for the activity to take place in parallel with others The ideal case would be to have all the processes to be independent of others so that maximum parallelism is achieved However this is not possible in reallife situations and hence the goal is to minimize intertask dependency
Action work flow is a modeling technique that is based on representing commitments between actors in a process {MedinaMora R et al 1994} A graph based descriptive method action work flow does provide mechanisms to compute work process timingSimulation of Process behavior There are various techniques available for modeling and simulation that include PetriNets object oriented modeling discrete event modeling rule based modeling and activity based accounting tTese have been adequately described in the literature{Peterson J L 1981 Booch G 1991 Coad and Yourden 1990 Cooper R and Kaplan R L 1988 Bhasker 1995 Zeigler 1991 G2 1991} A recent innovation from IBM Watson Research Center is the development of process analysis systems that incorporate object oriented modeling along with discrete event simulation {Bhaskar R 1995 Zeigler B P 1991}
Computer based support for Process analysis
Computer based tools for process modeling in common with other computer based tools are narrowly focused We shall not list the set of tools for each formalism described above there exists at least one support tool in the market We shall however review the current stateof theart tools for process modeling
Current tools are based on one formalism or another and this restricts the representations For example choosing a IDEF0 formalism restricts its use only to description and communication and not to simulation or modeling the dynamic behavior On the other hand because of the adopted formalism even the tools of simulation are restricted to narrow views of the processes For instance tools of activity based accounting are spreadsheetbased and are not connected with other process modeling requirements The general lack of an integrated set of tools has been recognized by process modeling practitioners and researchers {ElzingaD L M et al 1995 Moad T 1995} and this has led to many US companies crafting their own tools
In the past few years there have been advances towards the development of an integrated process modeling system A new system BPMAT (Business Process Modeling Analysis Tool) has been developed by IBM in collaboration with CACI (a discrete event simulation software shell vendor) {Bhaskar R et al 95} This system is an integrated process modeling tool that combine object basedmodeling with an embedded discrete event system for process simulation They are currently integrating activity based accounting to this system The basic system allows users to describe the process at different levels of abstraction to provide for top down hierarchical decomposition and horizontal process structures representing work groups An extensive user interface that allows monitoring changes in the process through bar charts resource level indicators and presentation of relevant parameters of the simulation is present in this model {An et al 1994}
Section 13 Information Technology and Process Reengineering
The relationship between information technology and reengineering is often expressed from two perspectives {Davenport T 1993 Hansen G 1994} The first perspective approaches the use of information technology for creating automated reengineered processes while the second views IT as a provider of change and these two define the approaches used in IT today When IT is seen merely as a supporter of automation and provider of appropriate tools its full and radically new capabilities are not recognized instead IT provides only the necessary tools and systems for supporting the process initiative Often IT ends up merely aiding the automation of existing process a far cry from the original objectives of restructuring This has led to failed expectations or at best to modest improvements {Davenport T 1993} There is also another concern in the use of IT as the prime vehicle for change many organizations at least in the past found it convenient to delegate restructuring to their IT departments that do not normally possess either a total vision of the company or the required breadth of the business processes These departments therefore tried to envisage a role for IT on the basis of the tools available to them and on what they perceived of the processand not on the basis of what was actually taking place and what indeed should be the changes This was because of the absence of cross functional teams in the IT programs and lack of adequate knowledge on the capabilities of IT as applied to specific business processes A typical example comes from the Texas Instrument’s reengineering efforts where their trackrecord of recent and consistent successes are traced back to several earlier failures which were due to the lack of cross functional representation in IT based teams TI since then has corrected this deficiency by radically restructuring its IT department as a center of excellence and undertaking reengineering only on a projecttoproject basis with crossfunctional teams
We believe that the use of IT in reengineering is only going to increase with the crossfunctional teams becoming familiar with opportunities made realizable with the availability of supercomputers parallel computers and Artificial Intelligence systems The capabilities of parallel computing especially in manufacturing have been pointed out in a recent National Research Council study { National Research Council 1995} IBM is now reported to be developing robust and more efficient parallel software for its mainframes that are presently used extensively in US industries The company hopes that this innovation would keep its main frames efficient and current Even artificial intelligence systems after a decade of euphoria and disappointment are now coming to their own and may provide realtime rationality to independently operating subsystems with different time constants
Section 14 Japan and Reengineering
Some years back observations were made on how Japanese companies invest in the development of products and processes Mansfield’s study of the Japanese companies showed that they invest twice as much on developing processes as on developing products {Mansfield E 1988} In contrast the US companies appear to spend two times the amount on developing products as on processes The Japanese focus is on engineering and manufacturing since their functional divisions are well integrated in their human organizational structures Interest in the performance of Japanese companies and changing market and economic conditions encouraged US companies and the Department of Defense to initiate and practice concurrent engineering {Reddy Y et al 1991} Being the technology leader in IT the focus of US is naturally in harnessing the capabilities of IT in implementing concurrent engineering practices Japanese firms understanding the importance of IT beyond engineering and manufacturing are carefully studying and targeting the ITbased approaches for information integration and work restructuring {JEIPS1991 Kawamo K et al 1993} In fact many Japanese firms have set up concurrent engineering departments to rethink the whole process {Subrahmanian E et al 1993 Davenport T 1993}
In a recent book Takeuchi and Nonaka {1995} point out that Japanese companies are reordering themselves to create what they term the Knowledge Creating Companies emphasizing the continual creation of knowledge to understand and serve customers better The Japanese corporations have come to believe that it is not only desirable but necessary to reallocate competence to readily respond to changing customer needs The Japanese corporations are pursuing these changes with or even without the use of IT
A major problem facing the Japanese corporations is on the introduction of IT in their workplace without destroying their existing humanbased functions and practices that they consider as their unique assets The human interaction in the workplace is credited with providing them with exchange of information storing of information knowledge and experience Mitsubishi Research Institute a leading advocate for introducing IT in Japan believes that it should be done incrementally {Kawamo K et al 1993} A recent Japanese publication cites a methodology for the introduction of IT in concurrent engineering with a case study confirming the advantages {Hirata T and Utashiro T 1993}
On the other hand a Japanese chemical company Mitsubishi Kasei Chemical (MKC) has plunged directly to a radical restructuring program Wanting to transform itself into a global corporation it is changing its language of operation to English and plans to hire over 1000 foreign engineers to break the monotony of homogeneity The core of restructuring consists of a 10 year Information Integration Plan that calls for indexing all information the company has in Japanese language into English and also to save more than 200000 man hours of redundant labor by introducing an information network that is flexible rich and easily accessible MKC believes that such a network when once in place will improve the training efficiency and even the performance of plants
Not all companies in Japan are as radical about restructuring as MKC is As a Japanese quality expert pointed out the Japanese firms are conservative when it comes to introducing changes in the workplace and when they do they do so incrementally The picture is different in the US with firms looking for technical breakthroughs new products and leapfrogging opportunities In spite of the Japanese caution IT with appropriate changes is expected to make its presence felt in the Japanese workplace in the coming years
Section 15 Human Resources and Reengineering
One of the visible consequences of reengineering is a large reduction of the workforce This is because of the elimination of many interfaces with a concomitant reduction of facilitators who are expected to ease the transition between phases Centering around the processes makes the workforce more versatile thus eliminating the identity of workers with a specific tasks The hierarchy is also transformed horizontally for example the reengineering of GE Medical Systems resulted in a hierarchy with a general manager a single production manager and about 170 people on the factory floor forcing people to become more versatile For instance an office worker is now using CAD systems regularly to plot production process flow a job previously reserved only for engineers Another example is from the GE Plant at Salisbury manufacturing electrical panel lighting boards where by training its workers and clearly defining the performance goals and production schedules the management ensured that every process worker knew how to use every machine in the plant
There are two major concerns about the impact of reengineering on human resource management The first relates to professionally preparing the workers for the change and the second concerns the problem of reducing the size of the workforce No other person in the US has argued more persuasively about the necessity of retraining and making workers more skilled and adept than the Secretary of Labor Mr Robert Reich In a forceful speech to delegates of the Private Sector Conference in Washington DC (Reich R 1993) he appealed for the creation of more jobs of quality rather than mere quantity He argued that the US must face a massive shift in the demand for labor in favor of highly skilled and highly educated workers in contrast to lessskilled and poorly educated ones Without mentioning reengineering by name he argued for a versatility and upgrading of skills that would transform work into high performance work the goal for the future of American labor The US Government has introduced plans of assistance for retraining and access to workplace information and services to those needing their services
Since we started preparing this report we understand that the US Congress is planning to delegate the 6 billion allocation requested by the administration for reskilling to the states It is feared that the states because of their tight budgets would reallocate their budget share to paying workers who are on welfare through programs such as workfare (A recent American jargon to describe those who are on welfare but are required to work to earn their welfare checks) It appears that at least for now the budget provision for reskilling would not meet the originally targeted objectives
But the usual problem is one of workforce reduction As a response to this problem the strategy adopted by Olin Pool Products (a sanitizing chemical manufacturing company) was to downsize quite early in the process to minimize demoralization and a nagging fear of job security among the remaining workers the socalled survivors There is also another concern elimination of management layers resulting in reduction in opportunities for promotion The only available transfers are horizontal exchanges In many reengineering programs jobs are therefore redefined to make transfers more acceptable
These problems have made even Mike Hammer concede that reengineering is not only about working but also has a critical management angle {Vitello J 1993} Unlike the Japanese companies US corporations focus more on the processes than on people {Cooper R and Marcus M L 1995} but this appears to be changing There are writings and articulated concerns about not only the workers who have been discarded but also about the survivors who have to perform In a recent analysis Dr Ambrose {Ambrose D 1995} points out the necessity for retraining those discarded by reengineering for future job opportunities Jobs in the coming years would only go to those who are skilled and versatile enough to negotiate the rapids of change in the workplace It is also necessary that the survivors learn to trust their employees and contribute their best to the restructured organization a difficult proposition because of the downsizing the company would have gone through In spite of this very human problem many in the US believe that reengineering is here to stay For it restores the spirit of community lost by industrializationback to society The future work would no longer be done by individual workers deskilled and dehumanized by the machines but by groups and teams that are empowered skilled and responsible for their actions It would be interesting to study the dynamics of group formation and their nurturing in the American workplace
Section 16 Problems in Reengineering
Reengineering involves four major stages that include an environmental review and assessment of the business identification of core processes benchmarking with performance target setting and redesigning the processes and implementation Reengineering is a major and radical innovation in the business process that very few companies are brave enough to attempt in full because it challenges the very method of doing business the established hierarchies and functional structures and thus will create serious repercussions among the workforce and in the board room Reengineering takes time and costs money in lost revenuesat least in the short runthat many companies are reluctant to go through the entire exercise in full Even when attempted partially if the targets are not properly set or the whole transformation not properly carried out reengineering may end as a failure We cite some recent American examples where target setting has been held responsible for the programs being abandoned
Problems in benchmarking
Varian concentrated so exclusively on improving the delivery schedules of its vacuum systems for computer clean rooms that its workers had no time to respond to customer inquiries and comments This is an important area of its business since vacuum systems are often custombuilt and the customer comments are critical for its business There was a significant drop in its growth in spite of the reengineering efforts the sales grew by a mere 3 in 1990 and the company posted a loss for that year (Business Week 1994)
Federal Express had a similar experience when it tried to improve the speed of sorting by its workers to a very high level of efficiency While it could achieve the speed the accuracy of sorting suffered actually delaying instead of speeding the delivery and costing up to 50 for redirection of every package Federal Express has overcome this problem finally by investing 100 million for new automated systems for sorting United Parcel Service introduced a new service for delivering parcels by 1030 AM the following day This involved a major restructuring of its delivery organization retraining drivers to be prompt and scheduling the routes to minimize delay They took restructuring to such an extent that the doors of the vans were designed to allow drivers to exit from their vehicles quickly and also increased the supervision of drivers to ensure compliance Soon the UPS found that customers were not so much concerned about the promptness of delivery at 1030 AM as they were about talking to the drivers about the customer services available from UPS By trying to chase the delivery schedule UPS seemed to have lost its major advertising asset viz drivers and ended up having a poor labor relations in the bargain Since then UPS has increased the number of drivers given them more time for delivering parcels to customers and reduced the supervision delegating to drivers the ownership of work (Business Week 1994)
To ensure that fear of failure does not lower the targets for reengineering some companies demand reasonable returns before agreeing to go ahead with the strategy For instance AT&T’s CEO Robert Allen insists that there be a drop of 30 in defects in the quality of products and at least a 10 return on investment before agreeing to reengineering strategies Similarly L D DeSimone CEO of 3M targets that 30 revenue from sales should come from products in the past four years while the previous norm was 25 in five years (Jacob R 1995b) Some benchmarks are based on the competitors’ performance For instance Global Information Solutions (GIS) an amalgamation of three computer companies formed by AT&T targets its sales per employee to match its main rival’s ( HewlettPackard) performance of 235000 Some other companies such as Johnson & Johnson believe that bench marking with competition without considering the involved costs would be impractical
Function versus Process Which One
A major target in reengineering is the elimination of functionbased structures and hierarchies since they are held responsible for noninteracting and insular groups with a vertical management style Without their elimination it is assumed that reengineering cannot proceed easily in organizations However a total elimination of functional structures especially in large corporations is difficult because of the stability and power they wield and also because they are the reservoir of the company’s experience knowledge and expertise Their knowledge in such areas as human resources benefits science and technology are invaluable and cannot be easily transferred to cross functional teams Many companies therefore find it optimal to retain some of the functional groups in largely reduced strengths using them as expert groups for advice and for making available their members for crossfunctional program teams
A unique example of reengineering without actually dismantling the functional structures comes from the General Motors Oldsmobile Division A detailed description of this initiative is given in (Kerwin K 1994) Oldsmobile division of GM was suffering for some years with gradual but steady fall in sales To regain the initiative Oldsmobile group discussed with over 4000 consumers their expectations from the product The results of this study showed that customers wanted a sporty fourdoor luxury sedan When the environment of the market was thus identified Oldsmobile instead of forming a single autonomous product team as is usually done in reengineering formed a group with an overlapping network of small teams located in the functional departments Each team had its clear mandate and a boss Thus a new vehicle program was launched with the design engineers from Flint working together with the marketing group from Lansing and manufacturing from Lake Orion As the product was to compete with upmarket range of cars the designers chose many desirable features of the competition as benchmarks and evolved a design of a rocksolid body and a large 40 liter engine with eight cylinders The manufacturing group had to work closely with engineers in developing tools and procedures for fabrication and assembly to ensure a seamless fit of parts The Oldsmobile group spent about 800 million developing this model named AURORA and spent another 20 million in dealer training programs and hopes to break even by 1997 with an annual production of about 40000 cars Already Aurora like the Saturn before is revolutionizing the workplace at GM New models including one from Buick are planning to incorporate the hard body designs of Aurora The company believes that unlike Chrysler or Honda it is possible to reengineer without disbanding the functional divisions and is using the development of Aurora as a template for its new programs
Section 17 And a Few More Lines
Business Process Reengineering has come of age It is truly an American innovation and not an import from the Orient As Prof Richard Greene from The University of Chicago points out {Vitiello J 1993} no other society dares to throw out an entire system in full and replace it with a new one It is in this sense a cultural revolution The external manifestations of this change are a drastic reduction in the labor force hierarchies getting squashed and becoming horizontal and processes controlling all activities But the central theme is more profound technology and society Instead of using new technologies and innovations to patch up the existing functional activities processes structures and keeping the deskilled workforce intact reengineering helped by the burgeoning new technologies opens up the entire process for a thorough scrutiny and restructuring Thus viewed reengineering is the overture for a paradigm shift in the business processes not dissimilar to the Moving Assembly Line or Taylorism The coming years will see more companies taking this route for their very survival and growth More innovations will then be added to this process and the process itself with use will also undergo mutations As we discussed in this report signs of these are already visible in the United States The coming years promise to be interesting
Section 18 References
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Professor V Arunachalam
Distinguished Service Professor
Departments of Material Science and Engineering
Robotics and Engineering Public Policy
Carnegie Mellon University
Pittsburgh PA 15217
and
Dr Eswaran Subrahmanian
Senior Research ScientistEngineering Design Research Center
Carnegie Mellon University
Pittsburgh Pa 15217
August 1995
A report to Engineering and Scocial Science Research Council UK
To enable the reader to access this BPRC report speedily and flexibly it has been organised into the following separate sections
Contents Page
Abstract
Introduction
Reengineering
Corporations and Reengineering
The Chrysler Corporation
Caterpillar
Jet Propulsion
Innovation in Defense Hughes Aircraft
Innovation in Technologies
Government Initiatives
Methods and Tools for BPA
IT and BPR
Japan and Reengineering
Human Resources in BPR
Problems in Reengineering
A Few more lines
References
A report to Engineering and Scocial Science Research Council UK
Section 1 Abstract
This report is on the recent innovations implemented by American companies in the way they manage their business and by the US government in supporting the industrial and technological base in the country American corporations visible to outsiders are generally very large with annual budgets running well above the national budgets of many countries and with a range of diverse operations transcending divisional organisational and national barriers In responding to changes in the global market place they are continually introducing innovations in process and product technologies and in product development and manufacturing cycles It is difficult to enumerate let alone discuss all the innovations that are seen in US business today Instead we shall focus on innovations that are significant and generic for improving business processes This is relevant as more than fifty percent of US firms are medium or small sized and the general competitiveness of US industry depends on them as well In this report we do not discuss the recent trends in financial merger ROD and marketing strategies and processes Instead we discuss only those issues related to business processes that impact the ability of US business to meet the identified market demands in cost quality and time
A phrase now increasingly in vogue to describe the efforts in process improvements is Business Process Reengineering (BAR) Hammer and Champ define BAR as the radical rethinking of the business processes to achieve dramatic improvements in critical contemporary measures of performance as cost quality and speed This characterisation of reengineering is often interpreted in multiple ways resulting in different models and methods of implementation of business process reengineering Reported failure rates of about forty to seventy percent for BAR applications in achieving stated goals can indeed be attributed to the differences in perceived definition of what constitutes reengineering and the level of implementation
In practice implementations of reengineering span from reengineering local process to a complete restructuring the entire organisation Business process reengineering for local improvements have led to the development of analytical models for optimisation of existing processes through simpler procedures and incorporation of Information technology Activity based accounting an American invention is also used in conjunction with process reengineering projects efforts The drive towards BAR in American industries has spawned an industry of consultants and process mapping and simulation tools A brief review of the stateofthe art in analytical methods and tools such as IDEFO SAT BPMAT and Design Process Matrix is also provided in this report
At the other end there are examples of well established organisational structures and processes being totally replaced by new structures and flexible processes Such total re structuring efforts may well include use of cross functional teams retraining and activities related to the management of innovation as integral parts of the business processes well beyond the conventional activities of design manufacture and service of products The difference between successful and unsuccessful firms that use BAR appears to lie more on the scope and coverage of the BAR efforts than on the mere application of tools and methods We illustrate the above inferences by discussing the various models used by some US firms and the experience of a few select industries in adopting BAR There are examples of a laboratory reengineering itself and others from defence industries reengineering themselves to accommodate ending of the Cold War and declining defence budgets
Reengineering depends on people the way they learn their jobs work and collaborate with their colleagues Often this involves learning new trades and work practices and embracing a new work ethic that transcends the narrow specialization that the workers find themselves in Past industrial innovations successful as they had been practiced division of labor on the work force to a degree that almost eclipsed the need for human ingenuity and innovation BPR has brought changes in the way the work force is perceived for effecting organizational changes Most successful examples of BPR are therefore from the corporations that practice retraining programs While bigger corporations have the resources to reengineer their processes and retrain their work force their successes also depend on how effective their suppliers in the value chain are in practicing BPR The problem of implementing BPR and the training of the work force in supporting firms is generally believed to be the responsibility of the individual firms Contrary to general belief the US government is not a passive observer of the restructuring of business processes that are now underway in the country It is intervening actively by providing initiatives and inducements to all firms for continuing education and retraining programs
The US govemment is also intervening actively in an innovative fashion to fill the gaps seen in US companies specially in processing and manufacturing stages These are considered essential to keep American products globally competitive The US federal and university laboratories large and successful as they are have been singularly ineffective in transferring these technologies to US industries Existing laws in place and concerns about patent rights and public knowledge have discouraged close collaboration between the laboratories and industries The US government has introduced multiagency (Defense Commerce NASA NSF and ARPA and Transportation) programs in defense dualuse and civilian sectors supporting short term programs of research in high risk high value manufacturing process technologies The major condition of support of such programs is that the program should be commercially relevant to industry and jointly pursued by laboratories and industries with leadership and matching financial contributions from industry In this report we discusses these initiatives known as ATP (Advanced Technology Program) and TRP (Technology Reinvestment Program) and their performance to date
The success of Japanese firms in capturing a significant part of the US automobile market in the 70's and 80's and their ability to adapt to changing economic conditions without undue changes in unemployment triggered the rethinking of the nature of business operations in American industry A serious search for new models of business began with the scrutiny of Japanese automobile industry by US companies and business theorists This involved studies on process innovations quality management and lean production technologies as practiced by the Japanese Meanwhile Japanese firms are introducing information technology in their work practices that not only preserves much of their organizational and cultural advantages but also incorporates a few US innovations In this sense both are learning from each other
The definition of Business Process Analysis is continually changing It is in the economic jargon both macro and micro details of every process matter as also the overall organizational objectives Technology is not the only driving force for re engineering Economic and cultural practices are relevant as well Knowledge generated by individual companies and business theorists and the experience gained by its application will be the BPR tools and methods for tomorrow Even with a limited repertoire of techniques and relative inexperience in applying them to business practices BPR currently is proving to be powerful approach for organizations wanting to be competitive
Section 2 Introduction
The United States of America is branded as a Superpower when it comes to military strength but the context can indeed be wider In practically all areas of human endeavor it stands on top it has the largest GNP biggest industrial and manufacturing base and an impressive efficient and enviable scientific and technological infrastructure Its output in as traditional an area as agriculture or in as modern a field as information technology is prodigious It is not only a granary for the world but also a demonstration and proving ground for harnessing new technologies or innovations for creating wealth or improving the quality of life Among the world’s 500 largest corporations the magazine Fortune lists 151 as American owned larger than any other country In 1994 alone these corporations earned a profit of more than 140 billion a record among other competitors
As impressive as this is it was actually better especially after the Second World War and in the 1950s and 60s Since then this lead has eroded away in some key manufacturing industries such as iron and steel automobiles and consumer electronics Meanwhile the deficit in trade balance in these areas between total value of exports and the total value of imports by the US has actually increased Since the seventies more areas have been lost to competition many new countries considered in the past as less advanced are emerging as strong competitors
Formerly the US tended to ignore these challenges and attributed the competitiveness of other countries most notably of Japan to their low wages homogeneity of population authoritarian culture workethic and low technology contents It also rationalized the loss by arguing that as the world’s largest technological power it was forever looking for new manufacturing opportunities relegating less technology intensive or laborintensive manufacturing to other countries
However the danger signs were visible in many areas The automobile industry was and still is very special to the US In addition to providing mobility to millions of Americans and linking this vast country it remains the core of American manufacturing and also the crucible for manufacturing and managerial innovations The moving assembly line and management practices empowering and integrating manufacturing centers with customers and suppliers are all the consequences of automobile manufacture But when this industry was overtaken by foreign competitors with their delivery of affordable and reliable cars of higher quality on time concerns were voiced about the productivity and competitiveness of US manufacturing and demands were made for urgent remedial steps A major study on US industrial productivity in 1986 by a distinguished group of sixteen experts including a Nobel laureate economist from the Massachusetts Institute of Technology {BergerB etal 1989} detailed the weaknesses prevalent in US industries not just in macroeconomics terms but in terms of the customer satisfaction quality of products efficiency of production speed of manufacture and introduction of new products and costs This study of 200 companies was the first to identify these gaps in the US system and traced their origin to the age of mass production antitrust laws use of workers as mere skilled operators overemphasis on products rather than on processes and to an environment that has long ceased to exist
This group found these strategies to be outdated in the face of increased global trading emergence of new technologies and their speedy assimilation by many countries and the growth of sophistication among consumers Thanks to new technologies manufacturing and process technologies were making production more flexible streamlined and efficient bringing in a quality previously thought as unachievable and at a speed considered unattainable The workforce was no longer a collection of skilled individuals but groups with competence transcending many areas of manufacturing and motivated by teamspirit delegated power and vested authority All these according to this study were missing in the American industrial and manufacturing scene Even in the 1960s the management guru Peter Drucker{1969} in a deeply perceptive book The Age of Discontinuity lamented the lack of any change in the structure of industrial organizations in step with the impressive growth of economy and technologies Small midcourse corrections were introduced in the well established but outdated structures to provide continuity when radical reforms and pathbreaking restructuring were in order
This report discusses one major business process innovation that is now sweeping the United States consuming the traditional but increasingly inefficient ways of doing business Reengineering has been the banner of this change in business practices This innovation is truly a homegrown one and as we shall discuss later not an import As with all things American its sweep is vast its opportunities are immense and the dangers of failure real In this report we first provide the scope of this innovation its impact on business and the mutations it is undergoing through case studies This is followed by a summary of analytical tools used in this innovation Subsequently we examine its consequences in governmental policies and human resource strategies We then briefly summarize the differences in the practice of reengineering between Japan and the United States since the US is concernedsome would say excessivelywith the way Japan conducts its business In summary we see an evolution even within a short period of a few years as reengineering is changing rapidly losing some of its harddoctrinal stances and learning to work with new technologies But more changes are needed some urgently so in areas such as human resources Rightly or wrongly Business Process Reengineering has come to be identified with Big People Reduction This image has to be shed if reengineering is to be accepted by the majority
Section 3 Reengineering
Reengineering is not the first and the only innovation in the business processes Initially concepts and practices such as Total Quality Management (TQM) concurrent engineering (sometimes referred to as simultaneous engineering) just in time’ inventories timecompression’ and lean production have been introduced as remedial measures Studies by Kim Clark and Fujimoto {Clark K and FujimotoP 1991} on the comparative performance of automobile manufacturing in three continents or the adaptation of Deming’s teachings on quality management {Deming 1986} or Kaizan its Japanese version have helped US corporations to introduce improvements in their manufacturing These even when successful are only of limited applicability and do not substitute a radical restructuring that Drucker advocated or the group from MIT recommended The paradigm shifts in manufacturing technologies as identified by Jaikumar {1988} have still not been accommodated by the required revolutionary structural changes of industrial organization Majority of the improvements as we noted earlier in spite of effecting continuous improvements in many areas of production have continued to preserve organizational structures with their divisions rules of business command and control systems intact instead of change The corporate culture still regards organizational hierarchies as sacrosanct more than its relationship with the customers It is in this business practice context that reengineering has emerged as a more holistic alternative
A Definition
The goal of reengineering or to be exact Business Process Reengineering (BPR) is its aim to destroy the organization as it exists and recreate a new one that focuses exclusively on business processes In Schumpeterian terms BPR is a creative destruction process removing function based vertically structured hierarchies by efficient process centered independent and empowered horizontal structures As a point of reference we define BPR offered by Hammer and Champy {HammerM and Champy J 1993} in their book Reengineering Corporations as the radical rethinking of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost quality and speed
This definition effectively rules out the incremental process improvements brought in by quality management or concurrent engineering as reengineering Nevertheless these improvements can be subsets of the entire reengineering process and the incremental improvements they bring in may even turn out to be useful determinants We shall therefore cite instances of such improvements in this report as part of analysis of the reengineering experience in American corporations
Modeling and Simulation of Processes
Reengineering consists of restructuring all the processes in the business so that they become efficient transparent and integrated with other processes in the system seamlessly In turn this requires that every process in the existing system be first scrutinized to assess its performance and to delineate its crossfunctional role before it is eliminated modified or replaced by a new process For such analysis versatile and efficient tools and simulation techniques are critical Many modeling approaches have been used including a recent one based on Systems Engineering{BhaskerRetal 1995} While most business processes are complex and are not easily amenable to analytic modeling without approximations simulation models and methods capture complex processes more effectively and can be subsequently validated and optimized In this report we therefore discuss various analytic methods simulation techniques and their tools that are now available for BPR
Information Technology and Reengineering
Information Technology (IT) is perhaps the most effective enabling technology for reengineering It helps in meeting the objectives of reengineering in three ways by providing information across functional levels and establishing easy communication improving the performance of the processes itself and also by helping the reengineering effort by modeling optimizing and assessing its consequences The veritable richness of this single technology has led many to interpret reengineering as the application of IT to business processes We shall discuss the role IT plays in some American reengineering efforts
US Corporations and Reengineering
In this report we shall cite three recent examples of US manufacturing firms that have transformed their organizations entirely through reengineering In addition we shall discuss the example of a US defense contractor venturing into a civilian areas of business and reengineering the entire process to introduce a new and a competitive product and service American business is not exclusively manufacturing servicing contributes a major component to the GDP and to employment generation In 1991 76 percent of US output came from services and the value it added to the US economy is about 70 percent It also contributes some key elements to manufacturing vendors and customers are served by this industry We shall therefore include some examples of reengineering efforts in this area that have turned out to be successful
Because of the very scope and size of the efforts demanded by reengineering the examples are still very few though there are numerous instances of companies reengineering a process or two no doubt hoping that the visible success of the efforts would make reengineering more palatable
The Role of Technology
Reengineering does not claim to substitute for either a sound business strategy product or technology It is only a mechanism for radically improving the performance of the business processes for the vendors customers and products But by centering the whole concept on processes reengineering is inextricably linked to technologies not just to information technology that provides the necessary tools for the transformation but also to other technologies that are necessary to the processes This is of some importance to the US because its corporations tend to concentrate more on developing products than on processes {Mansfield E 1988} Antitrust laws and concerns about cartels and monopolies have also prevented the US corporations from cooperating with each other This is a sore point with many American companies They complain loudly about the extent to which their foreign competitors are able to get support from their governments or to pursue collaborations with competitors within their national boundaries to jointly develop new technologies At last the US government is waking up to this challenge The perceived difficulty of acquiring semiconductor chip manufacturing equipment from Japan induced the US lawmakers who normally frown on corporations coming close to each other cooperate in setting up an organization SEMETECH for manufacturing semiconductor processing equipment within the country {RandazzeseL 1994} Government intervention has grown further with the two major US government R&D organizations National Institute of standards and technology (NIST) and Advanced Research Project Agency (ARPA formerly DARPA) contracting research and development programs on manufacturing technologies A major condition for this support is that these programs be jointly pursued by research organizations and US companies with the companies playing the major role Even though this initiative may not fit into the structure of reengineering as is perceived today we believe this collaboration will have profound impact on the future strategies of US corporations during restructuring In effect US Companies will have the added bonus of choosing from new sets of process technologies We shall report on some instances of the initiatives taken by the US government in this effort
Human Resources
The role of human operators is radically altered in reengineering Instead of specialized skills a broad range of competence is called for A keyword in reengineering is flexibility and this applies to humans as well Functionally based vertical hierarchies are replaced by horizontal structures where the positionbased power is replaced by participationbased authority This shift provides the scope for extensive delegation of power and responsibility in reengineering this is one of the reasons for the present US administration coming forward with fiscal incentives for worker retraining called reskilling
In spite of the promises of empowerment there is a genuine concern among workers about reengineering While a flat hierarchical structures with minimum designations appear to be good for generating the enthusiasm of workers it also frightens them as there appears to be few avenues for promotion and growth Only lateral displacements are visible as also the spectre of downsizing We shall discuss the consequences of this concern in some instances of reengineering and the after effect of this feedback among the proponents of reengineering
What is Japan Doing
Companies opt for reengineering to restore their competitive edge in their line of business But this experiment is performed in many countries with techniques suitably altered to take into account the different environments in which they operate A major question usually discussed among the US academics in business management is the performance of Japan We shall briefly discuss how the Japanese corporations restructure their business in relation to what is happening in the US This is of some relevance as rightly or wrongly US perceives Japan as its principal competitor in many areas of high technology where it wants to remain on top Hence trade disputes are not easily resolved and are taken to the highest levels of political leadership seeking favourable settlement
Section 4 Corporations and Reengineering
We shall first discuss three specific examples of reengineering mainly in manufacturing Each of these cases exemplify the need for radical restructuring of the organization with attendant emphasis on information technology human resources open communication flow supplier reengineering and education The first the Chrysler Corporation one of the big three of the US auto giants probably is the most studied and visible example of radical structuring in the auto industry that included a completely redesigned workplace to accommodate the new process and philosophy The second case is Caterpillar once an unchallenged earth moving equipment manufacturer In 1984 this company found itself with a billion dollar loss and intense competition from the Japanese companies Komatsu and Hitachi that challenged its previously assured old homemarket Caterpillar had to restructure its whole organization radically and the results have been very successful it reaped a record profit in 1994 But the routes followed in this restructuring by Caterpillar and Chrysler have been very different The third case is a government space research laboratory Jet Propulsion Laboratory that has restructured itself in the face of extensive cuts in defense and space programs We shall analyse these cases using a structure that traces the history of the firm the focus of reengineering and the routes adopted for its implementation Theses will include restructuring both at the organizational and workplace levels use of information technology and human resource management
Section 5 The Chrysler Corporation
The history of the Chrysler Corporation one of collapse and revival through reengineering has provided a major impetus for this business innovation After a well publicized government bail out when its bankruptcy was imminent in the 70's the initial turnaround of Chrysler was mainly fueled by sales the marketing strategies of Lee Iacoca and the fortuitous demands for its mini vans All these took place without major changes in the structure or the functioning of the company In spite of these changes the component based approach to automobile design and manufacture still required a 45 year cycle More it was burdened was with too many car designs and no ownership of the models within the firm To understand its problems Chrysler undertook an eighteen month study similar to that of Xerox {Jacobson G and Hillkirk J 1987} first by benchmarking Honda's development cycles Mitsubishi's strategies through the diamondstar (MitsubishiChrysler) collaboration and later the successful Jeep operations of the newly acquired American Motors
Learning from these benchmarking experiments Chrysler embarked on a creativedestruction process by instituting dramatic cultural changes that destroyed the functional silosbased vertical organization and creating a reengineered workplace This workplace centered around the four cross functional platform teams for large cars small cars mini vans and Jeep vehicles and trucks The objective was further sharpened to address only the American market a market that was lost to the Japanese and its US rivals especially the Ford
The results of the reengineering efforts were beginning to show in 1992 In 37 months from design Chrysler had in production the LH series of cars using the platform team organization This was done with 740 people as opposed to 1400 previously for similar size cars The engine development time for a 35 liter option was reduced from 240 weeks to 187 weeks {Gardner G 1993 IMB 1993} Chrysler then embarked on a development of a compact car Neon as a direct competition to the Japanese imports Chrysler developed Neon on its own without any foreign collaborator a first for an American car company in the small car category The car was in production in 31 months It is reported that the next generation LH car would take only 24 months In 1994 Chrysler was adjudged as the lowest cost producer of cars in the world{Taylor A 1994}
Design and Production
One of the corner stones of Chrysler's reengineering program is the 15 billion dollar Technology Center at Dearborn Michigan Chrysler used this center to perform its first cross functional team experiment for the sports car Viper with a goal to reduce the designtoproduction time to 36 months With this experience Chrysler Technology Center (CTC} became the hub of Chrysler's new reengineered corporation The layout and architecture of the Center's building was designed with the objectives of breaking functional barriers by increased facetoface contact of the members working in product platform teams and by the inclusion of inhouse manufacturing and testing facilities similar to those in the production plants The building was organized by a floor per product platform with a common manufacturing facility at the ground floor The layout plan for the floor corresponding to each platform is identical Thus for every person responsible for a functional task in a platform hisher counterparts in other platforms were spatially located either exactly above or below in their corresponding platforms {Gardner G 1993} The workplace design catered to this unique arrangement A major objective of reengineering was to encourage and maximize communication between the team members from all functional specializations This was achieved by them sharing the same floor and through the existence of technical clubs Other common needs across platforms were met by the setting up of three centersfor scientific testing data and information integration and technology and management
In effecting this radical cultural change Chrysler encouraged the teams to challenge the system and try out new ideas without fear of failure In the new environment Chrysler empowered the process teams to undertake simultaneous development delay decisions until the last identify critical paths and eliminate nonwork elements in the processes The implementation strategies included benchmarking redelegation of decisions to appropriate levels and requiring that all decisions at the interfaces be made by consensus
Supplier relationships
Following the Japanese model Chrysler insisted that its suppliers were colocated allowed to participate from the start of the design and were also provided with the parts requirements right from the layout While designing the LH series Chrysler reduced the number of suppliers to a mere 200 from a previous 600700 and the total supplier base from a few thousand vendors to less than 1500 To maintain continuous communication with the suppliers for improving product quality and cost the purchasing department instituted a program with suppliers for cost reduction ideas Chrysler thus realized over 400 million as permanent annualized savings
Advertising and Marketing
With the overall changes in the structure and operation of the company to reduce cost it is also necessary to reengineer all the local processes Chrysler for instance reduced the number of steps in its approval process for artistic media and research and reduced the approval time from 68 weeks to 2 weeks {Serafin1993}
Information Technology and Reengineering
Chrysler has been steadily introducing information technology even before the completion of radical restructuring {Seigal 1986} It first began by implementing an integrated information system for sales supply and design with a parts distribution scheme that allows a dealer to enter a part request on a computer that automatically forwarded it to the corporate computer The depot computer received these orders and turned them into work assignment directly to each workstation Directed by a personal computer individual workers fill 16 orders simultaneously by picking parts from three horizontal conveyors and a sorting station
For design and analysis Chrysler is extensively using CADCAM systems that are integrated not only within the company but also with the outside suppliers as well A combination of super computers mainframes and workstations provide the computing environment to perform a range of design analysis activities including finiteelement analysis aerodynamic and impact simulation programs assist and test NC programs solid modeling and aerodynamic analysis {Mills 1987}
Chrysler integrated its IT in manufacturing with advice and assistance from Caterpillar and Boeing Some innovations in this area include an automated storage and retrieval system to handle vehicle bodies in sequence and justintime at two plants that produced Dodge Dakota pickup {Forger 1993} For the LH series cars the Bramelea assembly plant in Canada installed a mono rail system with diagnostic equipment that tracks with cars greatly increasing quality and flexibility {Auguston1989} It has also provided computer based diagnostics systems to its service dealers to help remedy problems in the first attempt itself
Human resources and training
Radical cultural changes require that workforce also adjust to changes in the workplace and the process While designing and producing Neon Chrysler extended its retraining program to over 200 assembly workers three years before production {MD 1994} to educate them on empowerment As the demands for training grew Chrysler contracted external firms to run structured training programs for its workers in newly automated assembly plants {Green and Spencer 1993} Recently it has also expanded the training program to include its suppliers and dealers using some of the newly available IT training aids
In the characterization of Womack and Jones{1994} Chrysler is moving towards a lean enterprise that incorporates all aspects of reengineering from the lowest level where the number of steps in the process are reduced to creating a radically new process by the clever use of information technology It is a holistic process that Chrysler has embarked on and this has clearly produced dividends with record profits in 1994 The strategy of combining empowerment through training delegation of decisions and open and rapid communication flow between concerned parties in designboth horizontally and verticallyhas indeed worked In the words of the CTC director We did not just imitate the Japanese but brought it to a high polish {Moskal 1994}
Section 6 Caterpillar
The reengineering of Caterpillar a giant in the earth moving machinery is 10 years old and was triggered by a billion dollars loss in 1984 after three year run of record profits from 1981{Hooker93} In the past Caterpillar’s expansion and profits came with the introduction of new products and was essentially growth driven the company’s products increased from a modest five to a record three hundred in 1985 But the Japanese competition eroded the profits first by offering quality products at lower costs and later by the opening of a number of centers for distribution and service in US
Caterpillar met this challenge by a radical restructuring of the entire company that included all its business processes Caterpillar’s strategy can be rationalized under three broad headings downsizing the vast and widespread business empire investments in new technologies both for manufacturing and for increased and efficient communication and implementing the new business process to replace the old functionbased structures
The Creative Destruction Phase’
The first stage was a painful process and Caterpillar tried to implement that fast to minimize demoralization This involved a closure of nine plants and laying off 28000 workers in four years By 1993 there was a further reduction of 10000 workers Caterpillar’s operation was comprised of 36 manufacturing plants 7 product engineering design control centers and 22 parts distribution centers located in 10 countries To manage restructuring effectively the structure was first reorganized to include only 13 product centers and 4 service centers distributed worldwide
The Technology Investment Phase
Caterpillar’s strategy was an emphasis on technology as an integral part of its work and the workplace and so invested about 18 billion in plant modernization and introduction of new technologies both in manufacturing and in information technology systems The new manufacturing systems included for instance computerized flamecutters unmanned cranes and other process innovations that reduced the time to fill orders from 20 to 8 days inventories by 50 percent and manufacturing space by 21 percent The IT systems included integrated shareddata management systems to facilitate communication among crossfunctional teams and a global communication network that linked the service centers effectively
Using computers Caterpillar developed a number of analytical techniques that effectively reduced the costly and time consuming physical testing and also shifted the testing phase during the early stages of development when costs would be lower For instance a full scale fatigue testing is expensive both in cost and in time and could take anywhere between 6 to 8 months and the test had to wait until the models were ready By resorting to analytical techniques Caterpillar was able to reduce the number of full scale tests from 45 in 1980 to 3 in 1993 The costs have also reduced with analytical techniques costing less than 50 of the full scale testing Caterpillar has also introduced virtual reality to solve some of the ergonomic problems in the cabin compartments such as visibility ease in the use of controls and other user driven requirements
The New Business Processes
Caterpillar used concurrent engineering as its main theme in restructuring and identified six critical success factors (CSF) for its reengineering These included the creation of a concurrent environment free flow of information among teams implementation of an electronic master for products and processes changes in policies and procedures predictive cost methods and management of cultural change and team dynamics
The shared electronic data system facilitated increased communication among crossfunctional team members even though they were not colocated The team members were fully empowered and were encouraged to arrive at decisions that involved various functional elements through consensus
A major test for this approach was to reduce the time involved in designing and manufacturing a new product from the then period of about seven years to about twenty months The success can be assessed from the fact that in 1994 Caterpillar reduced this period to a thirty nine month cycle Another test is the number of changes introduced in the new product initiative Changes when introduced in the initial stages are not very costly but become very expensive in the final stages That is also the period when a large number of changes are forced into the design for instance in the last three months of development every change costs on an average about 1000 dollars and the development team had to deal with about three hundred changes With the new concurrent engineering initiative these changes have reduced significantly
A major component of reengineering is training and Caterpillar took a major initiative in integrating its suppliers as allies in the CPPD program By educating its suppliers in quality improvement methods as a part of its Quality Initiative and by organizing formal and structured seminars that were customized to the needs of suppliers Caterpillar extended its restructuring to its supplier base as well With a similar initiative it also instituted dealer training to improve its customer services By structuring their reengineering initiative to center around technologies and by encouraging a total team connectivity through IT Caterpillar has been able to provide a unique American example that is different from Chrysler which learned its first restructuring lessons at least initially from Japan
Section 7 Jet Propulsion Laboratory
Jet Propulsion Laboratory (JPL) located in Los Angeles is a premier space research laboratory and was responsible for some major advanced space spectacles such as Mariner Voyager the Hubble telescope and the Galeileo space flight systems JPL executed these programs on a requirementsdriven basis with sequential stages The project teams were organized hierarchically and functionally This model of design worked well when the budgets for space flight programs were in billions of dollars and the allocations appeared almost inexhaustible This situation in recent years has changed dramatically with large cuts in the budget and increasing criticism of NASA’s manner of managing such programs These changes have forced JPL to reevaluate its role in the design and production of space exploration vehicles JPL has taken a major initiative altering its strategic sights from the mega projects of the past to defining and executing a series of small and moderate space missions that are scientifically exciting publicly engaging and financially affordable {Casini 1993}
JPL much like Chrysler is pursuing reengineering by a radical cultural change and workplace design The theme for change was to move away from engineering the performancebased requirements to one based on capability and executed by empirical and budget driven designs To institute these changes JPL created an implementation development office with a mandate to improve its capability to execute low cost rapid development projects by developing innovative technical and management processes This department was also entrusted to build and manage a Flight Systems Testbed and Project Design Center that would become the future workplace This project was started in the early 90's and the Design Center scheduled for completion in 1996 The other objectives of this initiative include a mission focused structure introduction of major cultural changes in work and a redistribution of functional roles The organization was flattened with design teams configured as smallsized functional teams and colocated in the same physical floor The design was now to be driven more by costs and a total systems approach as opposed to requirements directed component based approach
The physical architecture of the Flight System Development Center at JPL as in Chrysler is meant to reflect the new organizationreplacement of the old functional silos with multidisciplinary cross functional teams The physical design of the Center is being fitted with the latest communication equipment and computer network to facilitate the communication paths between project members and computerresident tools and data bases Workspace for each module of the spacecraft reflects the composition of the disciplines needed for the module (eg telecom avionics mechanical) and is physically arranged as a pentagon seating five persons These workspaces for the modules are in the same physical floor of the Center and are very well connected to the communication and computer networks The Center also hosts many prototyping facilities for the Flight Systems Test Bed a virtual test bed with an array of interconnections with functional and testing laboratories
A main objective of the process analysis at JPL is to identify acquire or develop the software tools required for the new parallel Project Design Center Process The approach adopted was based on an inputoutput description of the products used and products created by each functional node A critical parameter is the timing of inputs from other nodes to a particular node and this is being identified for the processes This analysis will serve as the basis for the integration of computer aids and information system for a smooth flow of information This when in place will facilitate a pathbreaking parallel capabilitiesdriven design process
The process at JPL is still underway and the results of this dramatic process and work practice changes are yet to be known If Chrysler's experience of workspace integration were to be a reference point then JPL's new flight systems development center with its parallel processing capabilities will succeed in producing cost effective space crafts
Section 8 Innovations in Defense Conversion Hughes Aircraft Co
Hughes Aircraft Co owned by General Motors is a major defense contractor working on projects related to aerospace and electronics When there was a downward trend in defense contracts Hughes restructured its core competencies to identify a niche in the civilian market and chose satellitebased digital TV Hughes assessed that it had all the necessary technologies for this venture such as digital data compression coding and decoding of signals Even though Hughes could have sourced many of the necessary technologies and components for the system from inhouse it chose outside vendors because of the cost advantages a civilian producer would have over its own divisions
Hughes thus formed a collaboration with an antenna and TV company RCA Thomson as its exclusive supplier for decoding boxes and small satellite dishes It also entered into a contract with Sony for manufacturing digital video tape machines for which Hughes did not have the expertise These machines were still under trickle production at Sony but the demand for these machines in numbers accelerated their production and brought their costs down Further contracts with film distributors such as Walt Disney ensured that there would be programs for its 175 channels Starting this project in 1990 Hughes Aircraft has shipped 700000 systems valued at 750 million in just four years Hughes estimates that by the end of this decade there would be 10 million sets with a revenue of 4 billion and an operating profit of about 1 billion
This initiative by Hughes has all the ingredients of reengineering The company assessed its core competence as satellite based systems and not as defense manufacturing and clearly assessed the process boundaries where it was competent Instead of using its own divisions that would have driven up the costs and reduced the output it chose at its principal collaborator a company that had all the necessary expertise in manufacturing antennas and decoders for the civilian market Similar collaborations with Sony Walt Disney and Parent Studio programs ensured excellent quality transmission and rich program options to choose from This has proved to be a unique example of the company achieving its competitive advantage over cable networks that are still handicapped by limited program options and mediocre quality of images and a lone satellite based rival Primestar that also did not have a large repertoire of programs or digital imaging Since eventually this service would be taken over by a terrestrial optical fiber cable network (because of the quality and range of options available to the consumer) it was essential that a satellite based digital TV be made available as quickly as possible With a subscription of 30 per month Hughes has already enlisted 500000 subscribers If Hughes had not taken this initiative and restructured its business process for the civilian market it would have joined the ranks of other defense manufacturers waiting to bid for infrequent contracts from the Pentagon
Section 10 Innovations in Technologies
Technologies in Business Processes are used in two areas in the offices and in the workplace Technology it is said is knowledge and information technology is knowledge of how to produce and use knowledge more effectively {Simon 1977} As we mentioned earlier in the report information technology is often perceived to be just an enabling technology for reengineering businesses and is occasionally criticized for its excessive involvement in process reengineering But its contributions can be far reaching including areas associated with redesigning the processes Hammer and Champy {Hammer M and Champy J 1994} discuss the reengineering experience of Kodak when it developed a new model to challenge Fuji’s singleuse camera To cut the development time Kodak developed an integrated product design data base in its Computer Aided Design and Computer Aided Manufacture {CADCAM) system that allowed the entire design team to be aware of all changes made to the design by individual designers This constant updating enabled all members of the design team to respond to such changes as and when needed without waiting for individual alterations to be complete
Boeing prides itself in calling its latest 777 aircraft a paperless design The entire design modeling and simulation was done on computer thus doing away with reams of paper drawings and specifications This was made possible by the use of advanced CADCAM software packages such as Catia Components are designed using computer drafting tools and stored in a central design database These designs are then analyzed for structural and aerodynamic loads using finite element and analysis software The part geometries stored in the design database are used to create a digital mockup of the entire aircraft revealing to the designers the integration of the different subsystems This has eliminated the need to make costly wooden mockups until now an essential part of the design process and reduced months in the design and development phase when various individual parts are redesigned or suitably altered to integrate smoothly in the mockup The manufacture of components is simplified by the automatic generation of NC part programs from the geometries stored in the design database
Varian a high technology electronics and vacuum systems firm has had mixed results in implementing reengineering {Business Week August 1994 pp 5459} to it operations We shall be discussing its experience in a different section Here we would like to cite that Varian has saved about 95 hours in the setup time by redesigning the parts that incorporate better technologies to make them fit easily in its medical radiological equipment and by learning to package the systems better This alone in savings is worth 50000 per hospital and Varian itself has saved about 18 million
The Customer Service Division of the Ford Motor Company {Jacob 1995a} is reengineering its entire organization to focus on increasing customer satisfaction Among the various core processes identified for reengineering the division has chosen to concentrate on designing and manufacturing easytorepair cars and has doubled staffing in upstream engineering an unusual response for a reengineering need
Most of often the examples quoted of reengineering are from the office vendor and customer ends of the business and a major concern of American industries in manufacturing viz the unavailability of uptodate process technologies has not been discussed until now in any detail in the business literature However things are not still and a great deal of changes are happening The US government’s intervention through support of R&D programs in areas of manufacturing is expected to influence if not actively promote interaction between research organizations and industries in the country In this section we discuss these initiatives especially those of the National Institute of Standards and Technology (NIST) and Advanced Research Project Agency (ARPA) in some detail There is a review on SEMETECH a consortium established as a collaborative venture between the US government and American semiconductor industries designed to defeat a possible Japanese monopoly in semiconductor chip manufacture {Randazze 1995}
Section 11 Government Initiatives for Reengineering American Industry
National Institute of Standards Programs
In the late 1980s the US government took a major step by intervening’ in strengthening and reengineering the country’s industrial base using the National Institute of Standards and Technology (NIST) as the agency for directing the change The initial programs included the now well known Malcolm Balridge Award established by and Act of the Congress in 1988 By setting out guidelines and the measures required for consideration of this award NIST encouraged both smallsized and large firms to improve their management of quality leadership human resources and information analysis While this award has had the desired publicity and encouragement two other programs also run by NIST the Advanced Technology Program(ATP) initiated in 1990 and the Manufacturing Extension Program(MEP) started in 1988 have also been recognized though less well known to the publicfor providing direct help to small medium and even largesized industries
The broad objective of ATP is to support the development of future products and industrial processes ATP is roughly a 500 million costshared program with investments specially reserved for the development of preproduct technologies that require companies to invest additional resources for refining and further streamlining their technology for market For a program that is barely four years old the results are impressive over 47 firms participating in the program report that they have reduced the time for the development of new products by over a year sixty percent of the participants report new alliances between firms with two to twelve partnersan event rare in the US Over one half of the awards have gone to small firms and many of them hope to add new employees within five years The 177 strong project portfolios covers a wide range of technologies from materials and manufacturing to biotechnology energy and environment In 1994 the ATP program initiated a focused program strategy that concentrated on industry identified technical and business goals achievable through interdependent R&D projects carried out over several years Input for these programs was solicited through workshops and white papers submitted by industry labor unions and universities
The other major NIST program MEP is targeted towards providing hardtoget technical assistance to 381000 small and medium manufacturers who account for half the manufacturing output and 12 million jobs The objective was to restore the declining productivity of the small and medium size industries that have been using outdated technologies and processes and to discourage large corporations transferring such activities to developing countries The program started with 3 centers in 1988 and has grown in 1995 to 42 centers the objective is to reach a 100 center network that would cover the entire country Currently 34 centers average about 20 partners per center MEP’s scope of support includes quality inspection (19) business system management (15) process improvement (13) market development (10) CADCAM (7) plant layout (7) human resource development (6) product or design development (6) EDICommunication (3) automationrobotics (2) and others (6) {NIST 1995} The following excerpt from the NIST progress report {NIST 1995} is an excellent example of the results achieved by this program When the Boeing Co told Manufacturing Development Inc (MDI) that it needed to meet the aircraft maker's stringent D19000 quality standards or risk losing its largest customer's business MDI Vice President Michael Castor knew the company urgently needed outside help MDI a 30person sheet metal fabricator located in Cheney Kansas called the NIST MidAmerica Manufacturing Technology Center The extension center's technical staff provided MDI employees with onsite training in statistical process control and they helped MDI secure a state grant that paid for half of the training costs MDI earned supplier certification from Boeing while improving its overall operation The company estimates for example that it will achieve a 50percent reduction in scrap reduce rework by 25 percent and realize annual savings of 132000
Since we started writing this report there is news of NIST closing its ATP programs because of the reluctance of the Republican majority Congress to allocate funds for such programs The Republicans appear to believe that such programs should be the responsibility of private business and the government should not have a direct role The ensuing battles in the US Congress promise to be interesting for this would be a rare instance when private industrieswho normally protest against any form of government’s controls or interventionmay be tempted to support the NIST initiative much against the wishes of the Republicans
Department of Defense Programs
Traditionally ARPA (formerly DARPA Defense Advanced Research Projects Agency) has funded defense industry related research In 1993 President Clinton unveiled the Technology Reinvestment Project(TRP) a first cross departmental program administered through ARPA with a broad objective to stimulate the transition to a growing integrated national industrial capability that provides most advanced and affordable military systems and the most competitive commercial products{TRP1995} The TRP funding addressed technology development deployment and manufacturing education and training The program has expended 12 billion dollars in the last two years The goals of the TRP project are to encourage industry to form partnerships needed to create a new generation of dualuse products In effect the military sector will reap the benefits of economies of scale generally seen only in the civilian sector of the economy and the insertion of new technologies rapidly and cost effectively It is a truism that military because of their perceived performance requirements is slow to accept and introduce new technologies This is seen specially in information technology where achievements in the commercial sector are far more impressive than in the defense sector Examples of dual use include infra red sensors for night vision radar systems optoelectronics digital imaging and telemedicine
TRP unlike ATP is a costshared program emphasizing partnerships and industrial commitments To date the industry has contributed about 60 of its resources to offset costs The objectives of the TRP program is to ensure that process and product technologies are available offtheshelf when needed by the defense industry TRP for instance has spent over 60 million in a manufacturing education training program The objective is to address the training and retraining needs of the displaced defense workers and improve the overall education emphasizing practice oriented degree programs at the graduate level
Since we started writing this report ARPA has also begun an internal process that looks very much like reengineering In order to make its programs acceptable to the new Congress ARPA is reexamining its priorities between long term goals and shortterm objectives While the picture is yet to become clear it appears that ARPA’s initiatives in manufacturing processes and use of information technologies are likely to increase For the present ARPA is engaged in discussions and meetings with its contractors
Section 12 Methods and Tools for Business Process Analysis
Restructuring existing organizations to new organizations require an understanding of the current structure and processes of the organization Understanding the existing process and structure setting the objectives for the new structure and predicting the effect of the new structure and process have given rise to a number of structure methods covering different aspects of the process reengineering task Some methods aid topdown approaches to reengineering while others use bottom up analysis Many successful reengineering cases use a combination of methods to set goals restructure the workplace select processes for improvement describe the selected process quantify the process improvement selection and to implement and institute a continuous improvement process {Elzinga et al 1995} In this section we review the methods used at different stages of reengineering and the stateoftheart tools that have their origins in the US
The top down approach
Benchmarking
Benchmarking is a process for searching new methods tools and practices to establish operating targets and productivity programs within a company based on the best practices in any industry {Champ 1989} An excellent example of benchmarking as the prompter for process reengineering is from Xerox {Jacobson and Hillkirk 1987} Several firms have used this method to set high level quantifiable goals As we pointed out in the Chrysler example that company used extensive benchmarking from its partners Mitsubishi Motors and Honda motors in setting its operating targets This stage led to Chrysler restructuring not only the processes but also the workplace Xerox on the other hand reengineered the process through small product teams and by restructuring the bureaucracy Benchmarking is a method that can be used with advantage effecting continuous improvement as well
Critical Success factor (CSF)Methodology
CSF was introduced by Mckinsey and Company in 1950s as means to identify key areas where improvements are necessary for achieving the goals set through benchmarking {Daniel 1961 Elzinga DL etal 1995} This approach has two steps first to establish and classify CSF through interviews with the top management and the second to establish measures to monitor the success factors These include customer satisfaction free flow of information implementation of an electronic master for products and processes predictive cost methods and the management of cultural change and team dynamics
Identification of critical success factors leads to the next stage in process reengineering In all the examples we cited earlier in this report the identification of overall goals benchmarks and critical success factors led to radical restructuring of the organizations and creation of entirely new processes Chrysler and JPL on the one hand embarked on the redesign of the workplace in order to achieve the CSF corresponding to free flow of communications Caterpillar on the other hand instituted the goal of creating a shared electronic master of product and process to facilitate free flow of information to compensate for its geographically distributed business
Many firms instead of adopting such radical restructuring approach reengineering by an incremental processtoprocess basis In this approach the question is one of selection of the process Methods used for the process selection range from informal approaches such as brainstorming to formal ones using multiattribute utility theory or other decision analytic approaches such as Analytical Hierarchy Process (AHP} {Saaty T 1980} AHP has been used extensively in a number of decision making contexts {Zahedi M 1986} and allows for the hierarchical structuring of a goal with its attributes subattributes and alternatives corresponding to such subattributes Input data are collected from the participants in the form of pairwise comparison of decision elements AHP uses its logical reasoning and other mathematical models in determining the relative order of priority among the alternatives and is available as a software package
The bottomup approach
A bottomup approach to redesigning an artifact (product or process) requires the understanding of the existing structure and its current performance As the focus of reengineering is the process a clear description of its structure (modeling) and an analysis of its performance (simulation) are essential both to communicate and verify the model and its behavior Often the models are purely descriptive (static) and are not amenable for a behavioral simulation of the process This makes the modeling of the process difficult
Descriptive modeling of business processes
The popularity of process modeling especially the descriptive formalism can be traced to the efforts of the US Department of Defense as part of its Integrated ComputerAided Manufacturing Program (ICAM) It was responsible for the creation of a standardized subset of SADT (Structured Analysis and Design Technique {Marca and McGowan 1988} under the name IDEF0 (ICAM Definition Method Zero) {SofTech 1981} Besides IDEF0 several modeling formalisms have been devised or borrowed from other disciplines to create process modeling tools These include use of Petri nets discrete event simulation object oriented modeling and data flow diagrams IDEF0 is one of the popular methods for the process description and there are several commercial tools now available based on IDEF0 formalism {Kalzinga et al 1995} IDEF0 is a graphical representation that allows for the description of activities as boxes and links{SofTech 1981} The links are used to represent physical objects or information needed to be produced by an activity A generic activity in IDEF0 is represented as box with four directional links input output mechanism and control The position of these links are fixed For example input control and mechanism are incoming links placed on the right top and bottom the box IDEF0 has a simple syntax and allows for the hierarchy of processes representation at different levels of abstraction
The Design Process Matrix originally developed in 1967 has recently been rediscovered and refined {Eppinger S etal 1994} The primary representation in this approach is a matrix The row and columns of the matrix are activities The entries in the matrix correspond to the flow of information between activities The activities are not grouped based on functional and organizational boundaries but only on information interdependency This matrix is necessarily sparse and is reordered by the use of precedence ordering and partitioning of the design process (DP) matrix The objective in this method is to reduce the dependence of information flow from other activities to any given activity so as to allow for the activity to take place in parallel with others The ideal case would be to have all the processes to be independent of others so that maximum parallelism is achieved However this is not possible in reallife situations and hence the goal is to minimize intertask dependency
Action work flow is a modeling technique that is based on representing commitments between actors in a process {MedinaMora R et al 1994} A graph based descriptive method action work flow does provide mechanisms to compute work process timingSimulation of Process behavior There are various techniques available for modeling and simulation that include PetriNets object oriented modeling discrete event modeling rule based modeling and activity based accounting tTese have been adequately described in the literature{Peterson J L 1981 Booch G 1991 Coad and Yourden 1990 Cooper R and Kaplan R L 1988 Bhasker 1995 Zeigler 1991 G2 1991} A recent innovation from IBM Watson Research Center is the development of process analysis systems that incorporate object oriented modeling along with discrete event simulation {Bhaskar R 1995 Zeigler B P 1991}
Computer based support for Process analysis
Computer based tools for process modeling in common with other computer based tools are narrowly focused We shall not list the set of tools for each formalism described above there exists at least one support tool in the market We shall however review the current stateof theart tools for process modeling
Current tools are based on one formalism or another and this restricts the representations For example choosing a IDEF0 formalism restricts its use only to description and communication and not to simulation or modeling the dynamic behavior On the other hand because of the adopted formalism even the tools of simulation are restricted to narrow views of the processes For instance tools of activity based accounting are spreadsheetbased and are not connected with other process modeling requirements The general lack of an integrated set of tools has been recognized by process modeling practitioners and researchers {ElzingaD L M et al 1995 Moad T 1995} and this has led to many US companies crafting their own tools
In the past few years there have been advances towards the development of an integrated process modeling system A new system BPMAT (Business Process Modeling Analysis Tool) has been developed by IBM in collaboration with CACI (a discrete event simulation software shell vendor) {Bhaskar R et al 95} This system is an integrated process modeling tool that combine object basedmodeling with an embedded discrete event system for process simulation They are currently integrating activity based accounting to this system The basic system allows users to describe the process at different levels of abstraction to provide for top down hierarchical decomposition and horizontal process structures representing work groups An extensive user interface that allows monitoring changes in the process through bar charts resource level indicators and presentation of relevant parameters of the simulation is present in this model {An et al 1994}
Section 13 Information Technology and Process Reengineering
The relationship between information technology and reengineering is often expressed from two perspectives {Davenport T 1993 Hansen G 1994} The first perspective approaches the use of information technology for creating automated reengineered processes while the second views IT as a provider of change and these two define the approaches used in IT today When IT is seen merely as a supporter of automation and provider of appropriate tools its full and radically new capabilities are not recognized instead IT provides only the necessary tools and systems for supporting the process initiative Often IT ends up merely aiding the automation of existing process a far cry from the original objectives of restructuring This has led to failed expectations or at best to modest improvements {Davenport T 1993} There is also another concern in the use of IT as the prime vehicle for change many organizations at least in the past found it convenient to delegate restructuring to their IT departments that do not normally possess either a total vision of the company or the required breadth of the business processes These departments therefore tried to envisage a role for IT on the basis of the tools available to them and on what they perceived of the processand not on the basis of what was actually taking place and what indeed should be the changes This was because of the absence of cross functional teams in the IT programs and lack of adequate knowledge on the capabilities of IT as applied to specific business processes A typical example comes from the Texas Instrument’s reengineering efforts where their trackrecord of recent and consistent successes are traced back to several earlier failures which were due to the lack of cross functional representation in IT based teams TI since then has corrected this deficiency by radically restructuring its IT department as a center of excellence and undertaking reengineering only on a projecttoproject basis with crossfunctional teams
We believe that the use of IT in reengineering is only going to increase with the crossfunctional teams becoming familiar with opportunities made realizable with the availability of supercomputers parallel computers and Artificial Intelligence systems The capabilities of parallel computing especially in manufacturing have been pointed out in a recent National Research Council study { National Research Council 1995} IBM is now reported to be developing robust and more efficient parallel software for its mainframes that are presently used extensively in US industries The company hopes that this innovation would keep its main frames efficient and current Even artificial intelligence systems after a decade of euphoria and disappointment are now coming to their own and may provide realtime rationality to independently operating subsystems with different time constants
Section 14 Japan and Reengineering
Some years back observations were made on how Japanese companies invest in the development of products and processes Mansfield’s study of the Japanese companies showed that they invest twice as much on developing processes as on developing products {Mansfield E 1988} In contrast the US companies appear to spend two times the amount on developing products as on processes The Japanese focus is on engineering and manufacturing since their functional divisions are well integrated in their human organizational structures Interest in the performance of Japanese companies and changing market and economic conditions encouraged US companies and the Department of Defense to initiate and practice concurrent engineering {Reddy Y et al 1991} Being the technology leader in IT the focus of US is naturally in harnessing the capabilities of IT in implementing concurrent engineering practices Japanese firms understanding the importance of IT beyond engineering and manufacturing are carefully studying and targeting the ITbased approaches for information integration and work restructuring {JEIPS1991 Kawamo K et al 1993} In fact many Japanese firms have set up concurrent engineering departments to rethink the whole process {Subrahmanian E et al 1993 Davenport T 1993}
In a recent book Takeuchi and Nonaka {1995} point out that Japanese companies are reordering themselves to create what they term the Knowledge Creating Companies emphasizing the continual creation of knowledge to understand and serve customers better The Japanese corporations have come to believe that it is not only desirable but necessary to reallocate competence to readily respond to changing customer needs The Japanese corporations are pursuing these changes with or even without the use of IT
A major problem facing the Japanese corporations is on the introduction of IT in their workplace without destroying their existing humanbased functions and practices that they consider as their unique assets The human interaction in the workplace is credited with providing them with exchange of information storing of information knowledge and experience Mitsubishi Research Institute a leading advocate for introducing IT in Japan believes that it should be done incrementally {Kawamo K et al 1993} A recent Japanese publication cites a methodology for the introduction of IT in concurrent engineering with a case study confirming the advantages {Hirata T and Utashiro T 1993}
On the other hand a Japanese chemical company Mitsubishi Kasei Chemical (MKC) has plunged directly to a radical restructuring program Wanting to transform itself into a global corporation it is changing its language of operation to English and plans to hire over 1000 foreign engineers to break the monotony of homogeneity The core of restructuring consists of a 10 year Information Integration Plan that calls for indexing all information the company has in Japanese language into English and also to save more than 200000 man hours of redundant labor by introducing an information network that is flexible rich and easily accessible MKC believes that such a network when once in place will improve the training efficiency and even the performance of plants
Not all companies in Japan are as radical about restructuring as MKC is As a Japanese quality expert pointed out the Japanese firms are conservative when it comes to introducing changes in the workplace and when they do they do so incrementally The picture is different in the US with firms looking for technical breakthroughs new products and leapfrogging opportunities In spite of the Japanese caution IT with appropriate changes is expected to make its presence felt in the Japanese workplace in the coming years
Section 15 Human Resources and Reengineering
One of the visible consequences of reengineering is a large reduction of the workforce This is because of the elimination of many interfaces with a concomitant reduction of facilitators who are expected to ease the transition between phases Centering around the processes makes the workforce more versatile thus eliminating the identity of workers with a specific tasks The hierarchy is also transformed horizontally for example the reengineering of GE Medical Systems resulted in a hierarchy with a general manager a single production manager and about 170 people on the factory floor forcing people to become more versatile For instance an office worker is now using CAD systems regularly to plot production process flow a job previously reserved only for engineers Another example is from the GE Plant at Salisbury manufacturing electrical panel lighting boards where by training its workers and clearly defining the performance goals and production schedules the management ensured that every process worker knew how to use every machine in the plant
There are two major concerns about the impact of reengineering on human resource management The first relates to professionally preparing the workers for the change and the second concerns the problem of reducing the size of the workforce No other person in the US has argued more persuasively about the necessity of retraining and making workers more skilled and adept than the Secretary of Labor Mr Robert Reich In a forceful speech to delegates of the Private Sector Conference in Washington DC (Reich R 1993) he appealed for the creation of more jobs of quality rather than mere quantity He argued that the US must face a massive shift in the demand for labor in favor of highly skilled and highly educated workers in contrast to lessskilled and poorly educated ones Without mentioning reengineering by name he argued for a versatility and upgrading of skills that would transform work into high performance work the goal for the future of American labor The US Government has introduced plans of assistance for retraining and access to workplace information and services to those needing their services
Since we started preparing this report we understand that the US Congress is planning to delegate the 6 billion allocation requested by the administration for reskilling to the states It is feared that the states because of their tight budgets would reallocate their budget share to paying workers who are on welfare through programs such as workfare (A recent American jargon to describe those who are on welfare but are required to work to earn their welfare checks) It appears that at least for now the budget provision for reskilling would not meet the originally targeted objectives
But the usual problem is one of workforce reduction As a response to this problem the strategy adopted by Olin Pool Products (a sanitizing chemical manufacturing company) was to downsize quite early in the process to minimize demoralization and a nagging fear of job security among the remaining workers the socalled survivors There is also another concern elimination of management layers resulting in reduction in opportunities for promotion The only available transfers are horizontal exchanges In many reengineering programs jobs are therefore redefined to make transfers more acceptable
These problems have made even Mike Hammer concede that reengineering is not only about working but also has a critical management angle {Vitello J 1993} Unlike the Japanese companies US corporations focus more on the processes than on people {Cooper R and Marcus M L 1995} but this appears to be changing There are writings and articulated concerns about not only the workers who have been discarded but also about the survivors who have to perform In a recent analysis Dr Ambrose {Ambrose D 1995} points out the necessity for retraining those discarded by reengineering for future job opportunities Jobs in the coming years would only go to those who are skilled and versatile enough to negotiate the rapids of change in the workplace It is also necessary that the survivors learn to trust their employees and contribute their best to the restructured organization a difficult proposition because of the downsizing the company would have gone through In spite of this very human problem many in the US believe that reengineering is here to stay For it restores the spirit of community lost by industrializationback to society The future work would no longer be done by individual workers deskilled and dehumanized by the machines but by groups and teams that are empowered skilled and responsible for their actions It would be interesting to study the dynamics of group formation and their nurturing in the American workplace
Section 16 Problems in Reengineering
Reengineering involves four major stages that include an environmental review and assessment of the business identification of core processes benchmarking with performance target setting and redesigning the processes and implementation Reengineering is a major and radical innovation in the business process that very few companies are brave enough to attempt in full because it challenges the very method of doing business the established hierarchies and functional structures and thus will create serious repercussions among the workforce and in the board room Reengineering takes time and costs money in lost revenuesat least in the short runthat many companies are reluctant to go through the entire exercise in full Even when attempted partially if the targets are not properly set or the whole transformation not properly carried out reengineering may end as a failure We cite some recent American examples where target setting has been held responsible for the programs being abandoned
Problems in benchmarking
Varian concentrated so exclusively on improving the delivery schedules of its vacuum systems for computer clean rooms that its workers had no time to respond to customer inquiries and comments This is an important area of its business since vacuum systems are often custombuilt and the customer comments are critical for its business There was a significant drop in its growth in spite of the reengineering efforts the sales grew by a mere 3 in 1990 and the company posted a loss for that year (Business Week 1994)
Federal Express had a similar experience when it tried to improve the speed of sorting by its workers to a very high level of efficiency While it could achieve the speed the accuracy of sorting suffered actually delaying instead of speeding the delivery and costing up to 50 for redirection of every package Federal Express has overcome this problem finally by investing 100 million for new automated systems for sorting United Parcel Service introduced a new service for delivering parcels by 1030 AM the following day This involved a major restructuring of its delivery organization retraining drivers to be prompt and scheduling the routes to minimize delay They took restructuring to such an extent that the doors of the vans were designed to allow drivers to exit from their vehicles quickly and also increased the supervision of drivers to ensure compliance Soon the UPS found that customers were not so much concerned about the promptness of delivery at 1030 AM as they were about talking to the drivers about the customer services available from UPS By trying to chase the delivery schedule UPS seemed to have lost its major advertising asset viz drivers and ended up having a poor labor relations in the bargain Since then UPS has increased the number of drivers given them more time for delivering parcels to customers and reduced the supervision delegating to drivers the ownership of work (Business Week 1994)
To ensure that fear of failure does not lower the targets for reengineering some companies demand reasonable returns before agreeing to go ahead with the strategy For instance AT&T’s CEO Robert Allen insists that there be a drop of 30 in defects in the quality of products and at least a 10 return on investment before agreeing to reengineering strategies Similarly L D DeSimone CEO of 3M targets that 30 revenue from sales should come from products in the past four years while the previous norm was 25 in five years (Jacob R 1995b) Some benchmarks are based on the competitors’ performance For instance Global Information Solutions (GIS) an amalgamation of three computer companies formed by AT&T targets its sales per employee to match its main rival’s ( HewlettPackard) performance of 235000 Some other companies such as Johnson & Johnson believe that bench marking with competition without considering the involved costs would be impractical
Function versus Process Which One
A major target in reengineering is the elimination of functionbased structures and hierarchies since they are held responsible for noninteracting and insular groups with a vertical management style Without their elimination it is assumed that reengineering cannot proceed easily in organizations However a total elimination of functional structures especially in large corporations is difficult because of the stability and power they wield and also because they are the reservoir of the company’s experience knowledge and expertise Their knowledge in such areas as human resources benefits science and technology are invaluable and cannot be easily transferred to cross functional teams Many companies therefore find it optimal to retain some of the functional groups in largely reduced strengths using them as expert groups for advice and for making available their members for crossfunctional program teams
A unique example of reengineering without actually dismantling the functional structures comes from the General Motors Oldsmobile Division A detailed description of this initiative is given in (Kerwin K 1994) Oldsmobile division of GM was suffering for some years with gradual but steady fall in sales To regain the initiative Oldsmobile group discussed with over 4000 consumers their expectations from the product The results of this study showed that customers wanted a sporty fourdoor luxury sedan When the environment of the market was thus identified Oldsmobile instead of forming a single autonomous product team as is usually done in reengineering formed a group with an overlapping network of small teams located in the functional departments Each team had its clear mandate and a boss Thus a new vehicle program was launched with the design engineers from Flint working together with the marketing group from Lansing and manufacturing from Lake Orion As the product was to compete with upmarket range of cars the designers chose many desirable features of the competition as benchmarks and evolved a design of a rocksolid body and a large 40 liter engine with eight cylinders The manufacturing group had to work closely with engineers in developing tools and procedures for fabrication and assembly to ensure a seamless fit of parts The Oldsmobile group spent about 800 million developing this model named AURORA and spent another 20 million in dealer training programs and hopes to break even by 1997 with an annual production of about 40000 cars Already Aurora like the Saturn before is revolutionizing the workplace at GM New models including one from Buick are planning to incorporate the hard body designs of Aurora The company believes that unlike Chrysler or Honda it is possible to reengineer without disbanding the functional divisions and is using the development of Aurora as a template for its new programs
Section 17 And a Few More Lines
Business Process Reengineering has come of age It is truly an American innovation and not an import from the Orient As Prof Richard Greene from The University of Chicago points out {Vitiello J 1993} no other society dares to throw out an entire system in full and replace it with a new one It is in this sense a cultural revolution The external manifestations of this change are a drastic reduction in the labor force hierarchies getting squashed and becoming horizontal and processes controlling all activities But the central theme is more profound technology and society Instead of using new technologies and innovations to patch up the existing functional activities processes structures and keeping the deskilled workforce intact reengineering helped by the burgeoning new technologies opens up the entire process for a thorough scrutiny and restructuring Thus viewed reengineering is the overture for a paradigm shift in the business processes not dissimilar to the Moving Assembly Line or Taylorism The coming years will see more companies taking this route for their very survival and growth More innovations will then be added to this process and the process itself with use will also undergo mutations As we discussed in this report signs of these are already visible in the United States The coming years promise to be interesting
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