Shyamal Majumdar: The people aspect of re-engineering

THE HUMAN FACTOR

What can be done when individual performances are fine yet organisational performance lags.

Most managers know how to recognise and handle problems that stem from inadequate individual performance. But what can be done when individual performances are fine yet organisational performance lags? That's the question Michael Hammer asked the top management of Ford Motor Company, which was grappling with a productivity problem in its accounts department even though individual appraisals showed employees were putting in their best.

Like their counterparts in countless number of companies all over the world, the Ford brass didn't have an answer to Hammer's question, but decided to follow his prescription of a radical change in the department's work processes. Ford is one of the first success stories of Hammer, the originator of re-engineering and process-centred enterprises "" managerial innovations that have become part of standard business practices now.

Here's what Ford did. The company's accounts payable department employed more than 500 people to make payments to its suppliers. These people matched the purchase orders sent to the suppliers with the documents generated within the company when the parts were received, and the invoice received by the company from the suppliers.

When the three documents matched, clerks issued payment to suppliers. But sometimes the documents didn't match due to many reasons "" the supplier sent the wrong parts or wrong amount, the supplier invoice was incorrect and so on. Although only a small fraction of the total number of transactions, the mismatched transactions took an enormous amount of time and resources to resolve manually.

Before automating some of these detailed functions, Ford decided to benchmark with its Japanese partner, Mazda. What it found was an eye-opener: Mazda employed just 50 people to handle roughly the same amount of work. The 500:50 ratio exposed the work process weakness "" something which mere automation could not solve.

Ford re-engineered the entire procurement operations to eliminate invoices first, and then moved to eliminate the receiving and purchase order transactions as well. By paying on receipt and eliminating the final matching required with an invoice, the company not only shortened its response time but also cut its accounts department staff by as much as 95 per cent. Ford later went even further, paying to its brake supplier only when it used the goods.

The Ford success with re-engineering created a new revolution with many others like IBM (the company reduced the time needed to bring new products to market by as much as 75 per cent by re-engineering its processes), AT&T, Hewlett-Packard, Xerox, and so on joining in.

But the spectacular successes notwithstanding, re-engineering became a target of criticism, as it soon became an euphemism for downsizing. Some critics also say that re-engineering was obsessed with technology and ignored the people aspect. According to them while process is important to the overall coherence of an organisation, in the end it is the practice of the people who work in the organisation that brings the process to life.

They say re-engineering treats the people inside companies as if they were just bits and bytes. They also cite a State of Re-engineering Report carried out in the US which said that 50 per cent of companies found that the most difficult part of re-engineering is dealing with fear and anxiety in their organisations; 73 per cent said that they were using re-engineering to eliminate, on average, one-fifth of the jobs; and, of 99 completed re-engineering initiatives, 67 per cent were judged as producing mediocre, marginal, or failed results.

But another section of consultants says the criticism seems to be the result of a tunnel vision. Re-engineering in fact focuses on rethinking from the ground up, finding more efficient ways of working including eliminating work that is unnecessary. Rather than eliminating employees, it focuses on optimising efforts and getting rid of non-value-added activities. Hammer himself had responded to the criticism by saying that while re-engineering's central focus is indeed on the redesign of processes, it does not regard practice as irrelevant.

In fact, re-engineering has meant putting the work in the context of the big picture and ensuring that all necessary tasks are done in the right order. Without a well-defined and well-designed process, people's talents are wasted and unleveraged. Process provides the structure into which practice fits; without process, practice can spiral into random improvisation and inconsistency.

It would be a good idea to compare process-based work to a normal task work. In the latter, one person enters orders, another checks credit, a third allocates inventory, a fourth picks and packs, a fifth does traffic planning "" with little or no awareness "" for what the others are doing. The supporters of process-based work says re-engineering helps give an overall framework that ties all the pieces together.