Improving Quality and Performance in Your Non-Profit Organization--Chapter 3

Chapter 3

Business Process Reengineering

If your heart stops beating and you keel over breathlessly, a professionally trained medical professional can often revive you by administering CPR. But if it’s your organization’s heart that fails, BPR, administered by professionally-trained consultants or by those within an organization, is increasingly becoming the TLA (“three-letter acronym”) of choice for cutting-edge managers, and a successor to TQM as the latest management bromide for reviving comatose organizations.

Business Process Reengineering is defined by Michael Hammer, the W. Edwards Deming of BPR, as “the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical measures of performance (cost, quality, capital, service and speed).”

The fanatical interest in Total Quality Management peaked in the 1980s, but its once-pervasive influence seems to have waned in recent years. One of the reasons often given for its apparent decline in the United States is that the philosophy of slow, incremental, and continuous improvement is generally inconsistent with American culture. Perhaps this is so; American organizational leaders are perceived as more impatient to see tangible results of their business management interventions compared to their Asian, African, and European counterparts. They want to see quantum leaps of measurable improvement rather than the tortoise-paced improvement promised by TQM advocates. The tenure of many organizational leaders is short; many CEOs come and go before TQM is fully implemented and showing results.

This new management technique was brought to prominence by an article in the July-August 1990 Harvard Business Review by Hammer entitled Re-engineering Work: Don’t Automate, Obliterate. Hammer, the President of a Cambridge, Massachusetts-based information technology company, promised revolutionary and spectacular short-term returns by abandoning continuous improvement in favor of radical and dramatic change. Hammer suggested that TQM falls short in helping companies meet the challenge of global competition in that it takes too long to see the results. The article reinvigorated a business community becoming frustrated with TQM, and heralded the business process reengineering movement.

Hammer’s article was not simply an academic exercise. He based his article on a pattern he noticed about what some companies did to dramatically improve business processes.

Hammer’s primary thesis is that conventional business practices evolved from ideas formulated in the 18th century at the beginning of the Industrial Revolution relating to division of labor. These ideas made sense at the time, when there was not the skilled, professional labor force and sophistication of information technology there is today. An employee could be trained to perform a single task and perform it well repetitively, coordinated by skilled managers who controlled the workers. Organizations manufacturing and selling goods found it efficient to divide themselves into bureaus and departments, with written and unwritten policies and rules providing guidance to each worker who exercised little, if any, independent decision-making authority. Typically under the conventional business organization model, an order from a customer had to be passed through a gauntlet of bureaus and workers before it was fulfilled (e.g., a sales person to obtain the order, a credit department to authorize the credit, an inventory department to see if the product ordered was available, an accounting department to prepare the invoice, a shipping department to ship the product, an accounts receivable department to process the check, and a returns department to handle returns).

The concept of reengineering is not new, as illustrated by a case history related by Raymond L. Manganelli and Mark M. Klein in their 1994 book, The Reengineering Handbook. They tell the story of William Sowder Sims, who came up with some breakthrough, innovative ideas on improving the accuracy of naval artillery. Sims came up with the idea of “continuous aim firing,” making adjustment in artillery gear ratios and moving the gun sight so an artillery shell fired from a ship would have, as he calculated, an improved accuracy of 3,000%. The idea, however, threatened the existing structure and culture of the Navy, in which navigators held the most important positions. As a result, Sims’ ideas were either ignored or rejected until President Theodore Roosevelt read about the proposal in a letter from Sims, and ordered that Sims’ report be distributed to every officer in the Navy. The changes were made, accuracy did indeed improve 3,000%, and the course of naval history was changed forever.

Manganelli and Klein draw several important conclusions from this story. First, reengineering is not a new concept, but the willingness of organization executives to apply the techniques organization-wide is new. Second, innovations that make quantum improvements require vision, which involves “thinking outside the box.” Third, the greatest obstacle to these radical breakthroughs is organizational resistance to change. Fourth, reengineering requires approval from the top to effect breakthrough change.

Fifth, the change agent in reengineering is usually someone who is not part of the organizational power structure. Sixth, there are limits to benchmarking (see Chapter 4), and there still may be opportunities to find those elusive innovations that improve performance many times over existing levels. Seventh, reengineering is an effective strategy whether an organization is teetering on the brink of competitive disaster, or whether it is the top dog. Eighth, perseverance is required to implement radical change, because most proposals to implement radical change must overcome substantial organizational resistance. And finally, the point of reengineering is to find dramatic improvement rather than incremental improvement.

A major strategy involved with BPR efforts is to look at a business process that has many tasks that have been performed by several specialists. Replace the specialists with generalists (or retrain the specialists to become generalists) who can handle all of the tasks of the process and have access to all of the information they need to perform all of the tasks.

“ At the heart of business reengineering lies the notion of discontinuous thinking—identifying and abandoning the outdated rules and fundamental assumptions that underlie operations,” Hammer wrote. The phrase “thinking outside the box” was not invented to describe BPR, but is often used in describing how managers should be flinging away conventional thinking about business processes, and considering redesign options that are not politically correct and go beyond traditional and standard business protocol.

In two subsequent books about reengineering (Reengineering the Corporation, co-authored by James Champy and The Reengineering Revolution, co-authored by Steven A. Standon), Hammer expanded upon his Harvard Business Review article. The first book became a New York Times bestseller, selling more than 1.7 million copies in its first 18 months, and it was translated into 19 languages.

Business leaders were not only reading it, but launching ambitious reengineering projects. American business’s ardor for TQM was being inexorably replaced by a fascination with BPR by the middle of the last decade of the 20th century. Hammer’s philosophy has turned him into a highly sought-after speaker on the business lecture circuit, and he commands fees ranging from $30,000-$50,000 per speech, among the highest in the industry for all types of speakers.

Hammer points out that information technology and automation have not been used to their potential. Organizations tend to use computers to speed up existing work processes rather than redesigning the work processes to take advantage of the technology. Since the work processes (usually defined in the business literature as the related tasks that achieve a particular business outcome) were designed before the new technology became available, they are inherently inefficient. Hammer calls for a radical change in the way businesses operate—start from scratch and redesign the work processes, using the advantages of information technology.

“ It is time to stop paving the cow paths,” he wrote in his seminal Harvard Business Review article, a line that has become a mantra for BPR adherents.

BPR requires a new way of thinking. Unlike TQM, which requires the involvement of everyone in the organization, BPR is necessarily implemented from the top. It is the zero-based budgeting of business processes, asserting that, at least theoretically, the past should have no bearing on what is planned for the future. It makes the assumption that organizations have evolved incrementally, reflecting a history of culture, tradition, technology, and customer needs that may not be particularly relevant today. BPR suggests that managers step out of the constraints of their current physical plant, work processes, organizational charts, and procedures and rules and look at how the work would be performed if they were starting from scratch.

BPR requires an organizational leader to step back and answer the question: If I were building this organization today from scratch, knew what I know now, had the technology and human resources that I have now, and the customer needs that I have now, would I still be doing things the same way? More often than not, the answer is “no!” In the non-profit environment, this might mean redesigning data collection and reporting, client intake, billing, purchasing, and every other process.

In many cases, new technology is available that will enable efficiencies. For example, a human service agency may receive a telephone call from a client requesting even a minimal change in service as a result of some change in circumstances. The person answering the telephone may have to put the person on hold and call the client’s caseworker, who has the client’s case file. The caseworker may have to put the person on hold and check with the supervisor for a decision on whether to waive a rule, and the supervisor may have to meet with the caseworker in order to make the decision.

Following BPR, the person answering the telephone for the agency may be able to pull up the case file on a computer screen and be preauthorized to approve a change in services within a constraint programmed into the computer by the agency. Or the person answering the telephone may be able to give the caller technical advice on how to solve a problem by searching a “frequently asked questions” file on a computer screen that previously was routinely transferred to a technical specialist.

Another way of looking at this is that everyone in the organization is functioning solely on his or her part of a process rather than on the objective of the organization. The receptionist answers the telephone. The case manager holds the file for a particular set of clients. The supervisor makes decisions authorizing variances from agency rules. BPR permits a work process to change so that the true objective of the process—responding to the client’s needs—does not require the intervention of several people in the organization. The revolutionary advance of information technology permits this.

With the use of networked computers and an educated labor force, it is possible for a single person to process and troubleshoot an entire order that previously may have required being passed serially from person to person in the organization, taking many days to complete. And the probability of an error under the old method multiplies the more hands are involved.

In Hammer’s words:

Conventional process structures are fragmented and piecemeal, and they lack the integration necessary to maintain quality and service. They are the breeding grounds for tunnel vision, as people tend to substitute the narrow goals of their particular department for the larger goals of the process as a whole. When work is handed off from person to person and unit to unit, delays and errors are inevitable. Accountability blurs, and critical issues fall between the cracks. Moreover, no one sees enough of the big picture to be able to respond quickly to new situations.

Hammer proposed as a first principle using modern technology to redesign work processes rather than work tasks, concentrating on permitting a single person to achieve a desired outcome/objective. For example, in the context of a non-profit human services organization, each client would receive a case manager who is responsible for all contact with the client, who is empowered within pre-set constraints to allocate resources of the organization to that client, and whose supervisor acts more as an advisor and consultant.

A second principle is that those who use the output of a process also perform the process. For example, instead of having a purchasing department make purchases of pencils and paper clips for the accounting department and other departments, the accounting department orders its own pencils and paper clips and other “inexpensive and nonstrategic” purchases. Doing so eliminates the counterproductive situation where the cost of making a purchase can exceed the cost of the products being purchased, and it avoids delays and errors.

For example, there is intense competition among mail order office supply companies. They send out catalogs offering discount office supplies and provide 800 numbers, no-hassle returns, and immediate credit. Does it really make sense for a purchasing department to handle routine office supply purchases for an entire organization when economies of scale are minimal? Many organizations require their employees to fill out a form for routine office supply purchases, have the forms approved by someone else, and then submit the form to a purchasing department for processing. Simply permitting departments to have an office supplies budget and authorization to purchase their own office supplies from pre-approved discount supply houses is a form of business process reengineering.

The layers of bureaucracy are cut, the office supplies can arrive the following day without any unnecessary paperwork, and the staff/staff time for processing these purchases is eliminated. Employees feel empowered when they don’t have to grovel with someone from another department to buy paper clips that, as is often the case, arrive on their desks weeks later, and in the incorrect size and amount, through the fault of neither the person requesting the supplies nor the vendor.

A third principle is that those in the organization who collect information should also be the ones who process it. For example, when the public relations department wants to send out its newsletter to a mailing list, it should be able to generate the mailing labels itself rather than having to make a request to a data processing department.

Fourth, Hammer suggests that organization resources that were decentralized should be treated as centralized, utilizing information technology to bring them together. A college with several satellite campuses, for example, could link its bursars so that a student making a payment at either the main office or a satellite campus would have the payment show up in the records of the registrars of all of the campuses.

Fifth, disparate parts of an organization should be electronically linked to promote coordination.

Sixth, let those who perform the work make the decisions, thereby flattening the pyramidal management layers and eliminating the bureaucracy and delay that slows down a decision-making process.

Seventh, use relational databases and other technology to collect and store information only once, eliminating both redundancy and error.

BPR is paradoxically both consistent with, and diametrically opposite to, TQM. Many see it as an evolution of TQM rather than a repudiation of it. As pointed out in a 1993 book by T. H. Davenport, Process Innovation, Reengineering Work Through Information Technology, TQM and BPR have similar roots and are both driven by the needs of customers, but diverge in their practice. TQM, for example, provides for incremental improvement, while BPR results in radical, discontinuous improvement. TQM makes changes to existing processes, while BPR starts out with a clean slate. TQM is a continuous process, while BPR is a one-time redesign. TQM involves all organizational employees and requires commitment from the bottom up, while BPR typically is a top-down management initiative. TQM involves moderate risk to the organization, but BPR involves high risk (although proponents recommend that a trial run of the process occurs before completely replacing an existing process). TQM utilizes statistical process control to enable workers to judge when to intervene in a process, while BPR utilizes the benefits of information technology to empower workers.

According to a 1996 article by Dr. Yogesh Malhotra, 70% of business reengineering projects fail. He attributes this to three reasons: lack of management commitment and leadership, unrealistic scope and expectations, and resistance to change. Indeed, BPR is viewed by many workers as a euphemism for organizational downsizing, since most BPR projects have as goals the elimination of layers of management and other workers. BPR suggests a radical and dramatic change in business processes. Employees are empowered to do jobs once performed by several, assisted by information technology.

Even Hammer, in his first book, suggests that 50-70% of BPR efforts don’t achieve the desired performance breakthroughs, although he suggests that rate of success is dependent upon the quality, intensity, and intelligence of the BPR effort. Why do efforts fail? Hammer and his colleagues say that there is one major underlying factor: the people doing the project don’t know what they are doing and don’t implement BPR techniques correctly based on practical experience.

Generally, BPR often enables a single person to perform all of the steps in a process by using information technology. One byproduct of BPR is that the need for many employees may be eliminated. This saves a lot of money for organizations. And it has the consequence of terrorizing a workforce. At the conclusion of a BPR implementation, there are often “winners” and “losers.” Some of the losers may be out of a job despite being loyal and highly skilled employees. Organizations have invested heavily in finding and retaining these employees, and it is good business sense not to squander this resource. From a non-profit organization perspective, humanizing the BPR process is consistent with values of non-profit organizations. Even for-profit companies that have reorganized find it to be good business to treat their employees humanely, and minimize the pain and suffering that often accompanies BPR efforts.

BPR Implementation

There are several BPR implementation strategies that have been developed. Summarizing some of the more popular strategies, a BPR implementation plan should include—

1. articulating the organization’s goals and vision for the future, and quantifying objectives

2. identifying all business processes

3. benchmarking all of those processes (see Chapter 4)

4 .performing an environmental analysis to identify economic, legal, political, technical, social, and other external forces

5. reviewing customer needs, complaints, and suggestions and using surveys and focus groups to collect more customer input

6. brainstorming by senior staff on how to improve business processes and meet customer needs regardless of the constraints of current design

7. developing a consensus among management on a plan to redesign business processes.

8. developing a timetable for redesign

9. designating a management team responsible for implementing the redesign, and motivating that team

10. designing a pilot for each redesigned business process, and testing that pilot

11. conducting staff training to implement the redesign

12. communicating to all employees the goals and status of the project

13. implementing the redesign

14. evaluating the redesign

15. minimizing the collateral damage to employees who are no longer needed as a result of the redesign

16. implementing continuous improvement to capitalize on the benefits of the BPR intervention.

Up Close: Dr. Larry Kennedy

Non-profit management consultant Dr. Larry Kennedy, author of Quality Management in the Nonprofit World, was introduced to quality management during his many years in the aerospace industry. Prior to becoming a consultant, he held responsible management positions with the National Aeronautics and Space Administration, a federal government leader in the development and implementation of system-wide quality management.

He served as an assistant pastor of the church to which Philip Crosby, one of the founders of the TQM movement, belonged, and was hired by Crosby to manage his philanthropic contributions. This serendipitous contact with one of the patriarchs of quality management was the beginning of more than two decades of a close personal and professional relationship, which continues today. Eventually, Kennedy not only took all of the non-profit management courses Crosby offered at his Quality College, but eventually became a certified instructor there and a “Johnny Appleseed” for Crosby’s philosophy. A resident of Orlando, he received his Ph.D. from the Union Institute in 1990.

Most of Kennedy’s book, published in 1991 by Jossey-Bass Publications, is geared to advocating the lessons Crosby teaches, but from a non-profit perspective. It is one of the most readable books on the market, offering practical advice to non-profit executives interested in quality issues.

Kennedy has observed differences between the non-profit sector and for-profit sector with respect to their perspectives on quality issues, but feels it is a myth that the for-profit sector cares more about providing quality products and services.

“ Those who manage non-profit organizations are more attuned to the issues of quality as it regards the efficacy of their services, but they have generally been committed less to the organizational disciplines of quality management,” Kennedy observes. “NPOs have always been far more sensitive to the core values of

their clients and the need to understand their requirements than most for-profit companies. They also possess a consistent attitude of serving the needs of people. But, too often they are willing to indulge themselves in the good feelings they have about doing good things at the expense of doing them well.”

He points out that non-profit organizations have a tendency to be unable to accept the accountability of Quality Management, excusing themselves from the data collection and paperwork required for formal TQM programs because of the goodness of their mission. In contrast, for-profit companies are cold-blooded about the need to conform to customers’ requirements in order to maintain market share and remain profitable.

“ Non-profit organizations sometimes act like undisciplined but loving shepherds, while for-profit organizations are harvesting fleece,” he analogizes.

“ I believe non-profit executives can compete with their for-profit counterparts on the technical side of management,” he asserts. “They are usually making personal sacrifices to forward their mission that the for-profit manager would never dream of doing.” But unlike most for-profit businesses, he believes, non-profits chiefly deliver human services, and thus have a stewardship role over vulnerable people that should encourage their organizations to emphasize quality.

Kennedy laments the isolated incidents of quality failure of non-profits that are often highlighted in the media for the public to see, and that adversely affect the public’s perception of the non-profit sector. “Every time I see an article in a newspaper or a piece on TV about the failure of a non-profit organization to hold itself accountable for moral, ethical, or financial mistakes, I know that clients have suffered at their hands—and these failures do not occur in a vacuum,” he says. “Not only will the clients and the constituents of the headlined organization suffer, but everyone in the community who offers similar services suffers along with them.”

Over the years, Kennedy has advised more than 100 non-profit organizations on improving their management, particularly emphasizing the philosophy of Crosby and his colleagues at the Crosby Quality College. Where has any resistance come from implementing programs to improve quality within organizations?

“ Resistance always comes from the centers of influence within an organization who feel threatened by the routine accountability of Quality Management,” he points out. “Some people just do not like being told that they can do things better. Instead of embracing the search for the causes of errors as the search for recovery of hidden treasure, they resist it as an intruder.”

Through his book, consulting work, and courses at the Crosby Quality College, Kennedy is steadfast in his support for TQM as a management philosophy, and believes it fits well with the goals and objectives of virtually all non-profit organizations.

“ The benefits of TQM far outweigh the drawbacks,” he asserts. “Non-profit organizations must focus on increasing the reliability of their services, and TQM helps with that aim.”

But implementing Quality Management into an organization will either raise it to new levels of effectiveness or destroy it, depending on the ability of the CEO to involve him or herself in the processes of implementation, holding him or herself and their colleagues equally accountable, he warns. “An organization which establishes the language of Quality Management without the practices of Quality Management will soon succumb to the sword of hypocrisy.”

In the effort to adopt change, the CEO must also have the commitment of the board to make quality management a practice rather than just a slogan, he says. “The board’s role is to make sure that the stated values of an organization are consistent with their policies, procedures, and practiced values,” he says. “The board should be auditors who follow the adage of the famous Russian proverb ‘trust, but verify,’ shamelessly pursuing the facts about their organization’s performance.”

And what is Kennedy’s “bottom line” advice to non-profit organizations?

“ Non-profit organizations should never be satisfied with any standard for the delivery of services which considers a defect in a service delivered to a client as acceptable,” he counsels. “That’s a ‘zero defects’ attitude and it will pay many dividends.”