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Business process reengineering: why it is needed and how it changes the company

Friday, November 26, 2021

Startup Jedi

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It sounds like a word from the construction or manufacturing sector, but in fact, reengineering is a standard practice for companies in any industry and in any part of the world. Today we will figure out how the reengineering of an organization's business takes place, why it is needed and what reengineering gives to commercial organizations.

What business processes are and what they are like

Speaking  about business processes in one phrase, then we can say the following that it is the basis of the company's activities. Business processes include all those actions of employees that are performed on a regular basis. A strong business organization embodies the principle «works like clockwork»: all operations inside each, even the smallest department, are streamlined and automated.Therefore, the heads of the organization have time not only to "put out fires" or assist employees to deal with the next problem, but to engage in strategic development, study market trends, launch new projects —  in general, go ahead. Another aphorism "the best leader is the one whose presence is invisible" is  about competently built business processes.

There are hundreds of these business processes in any, even a small company, and thousands in an international corporation. They are divided into the following types:

Managers —  allow you to  directly manage  the company's activities.

Examples: planning, holding meetings, distribution of authority when launching a new project.

Operational —  constitute the essence of the company's commercial activity and bring it profit.

Examples: "cold calls" in the sales department, production, marketing.

Supportive —  these operations do not bring profit, but without them the company would not be able to function.

Examples: accounting, preparation of documents to the tax service, recruitment.

Engineering and reengineering of business processes: what is the difference?

Engineering involves making small corrections to business processes: you can compare it with cosmetic repairs. The least effective processes in the company are being identified and improved, but in general there is no radical restructuring. The effectiveness of work in engineering can grow by no more than 50%, because we are talking about optimizing the existing system. 

Reengineering is a much more radical measure. Here we are talking about a global restructuring of business processes. In the course of reengineering, the company's activities can be radically changed. The effectiveness of key indicators after reengineering can increase by 100-500%. 

However, this does not mean that you can take any organization, reengineer business processes in the organization, and it will become 5 times more profitable and efficient. As a rule, reengineering is used by companies that are faced with a crisis in one form or another — without increasing the indicators several times, they may simply not survive. 

In what cases do companies decide to reengineer?

  • The company's indicators are consistently worsening, it is threatened with bankruptcy.

  • There is no acute crisis in the company yet, but the management sees a "stagnation" or a decline in efficiency and realizes that the current business processes are outdated.

  • We need to quickly switch to a new business model due to external changes (a classic example is a pandemic).

  • A company absorbs another large company or enters a new market.

  • We are talking about a young fast-growing company (startup) that does not have time to debug and configure business processes — and this pulls it back.

How reengineering works: 5 main stages

Preparatory stage. Before changing anything, you have to decide what is «here and now». This requires a preparatory phase that analyses the current state of the company, the reasons that led to it, the available resources and the tools.Also at this stage, the composition of the team that will carry out the reengineering is determined: most often a professional outside organization is hired to develop the reengineering model, but on the side of the company there should still be a team of managers, who will be in constant contact with experts and will be responsible for implementing the changes. 

Planning. After analyzing the raw data, the team begins planning the changes. The main goals and objectives, time frames and areas of responsibility are defined. It also defines the point at which to come —  the ideal way of work of the company in which reengineering takes place.

Redesign. This is the beginning of an immediate reengineering of business processes. All processes are studied «under the magnifying glass»: it is determined which ones do not allow the company to achieve the desired results, and how they should be replaced. Customer analysis plays an important role at this stage —  a portrait of the target audience is studied, surveys and problematic interviews are conducted, often a customer journey map is made.

Another essential tool is forecasting — a model of the future company's work is being built. It is at this stage, when creating a project for reengineering the organization's business processes, the team must show all its professionalism. That's why the participation of third-party experts is preferable: they have a lot of experience and a "fresh eye" view from the outside.

Integration. This stage is the transition from everything created on paper to reality, when all the planned changes are implemented in the life of the company. It is very essential to carry it out smoothly: if employees are used to working according to certain rules, and from Monday everything is turned upside down, it will cause discontent, chaos and such a drop in productivity, which can further harm the company. Therefore, the transition should be as careful as possible for employees. Here comes the time to show their professionalism to the heads of the company and all its divisions, because they have to explain, teach and correct. 

Analysis. The final stage, at which, after some time, the results of reengineering are summed up — according to key performance indicators, it is measured how much the company's work has changed, whether the goals have been achieved and whether new business processes have "settled down". Without this stage, the work on reengineering cannot be considered completed.

Types of business process reengineering

There are several classifications of reengineering, here we will analyze the two most frequent. 

  1. Reengineering by type of situation:

Crisis —  is aimed at "pulling out" an organization out of a crisis situation due to rapid and radical changes in business processes.

Developing —  there is no crisis yet, but the company strives to prevent it by reviewing its business processes in time. This happens both with sudden external changes in the market, and with the internal needs of the company itself. At this stage, the company may abandon some unprofitable activities or introduce outsourcing and transfer part of the processes to contractors.

  1. Reengineering by type of transformation:

Evolutionary — business processes within a company can be greatly changed, but there is no radical "change of course" of the organization (for example, complete re-profiling and moving to a new market or a new audience).

Revolutionary —  radical changes up to full change of operations of the company. As a rule, such reengineering is resorted to less frequently and in a more critical situation. But as we know from recent experience —  sometimes they happen at once and with whole industries, and with the whole world, and here the phrase «adapt or die» becomes the motto of even the most prosperous companies.

Principles of business process formation

Reengineering considers each business process from the point of view of universal principles. An effective business process must meet these principles, and at the first stages of reengineering, the team is working on this, evaluating the current processes from the point of view of the principles and determining how they can be changed to achieve compliance. 

What are these principles:

Integration — all business processes do not exist by themselves, but are part of certain groups of processes. This way the work becomes more systematic, there is less confusion, losses and expenses. 

Diversification is the simplification of business processes as much as possible. It eliminates unnecessary bureaucracy, time and resource losses, reduces the burden on employees. 

Variability — additional implementation options are being worked out for each process: so the company always has a plan B, it becomes more flexible and adapts better to changes in the market. 

Decentralization is getting rid of the hierarchical structure, in which for each action it is necessary to request the approval of several levels of superiors; departments learn to work autonomously, and employees independently solve emerging issues and problems. This way the organization starts working faster and more productively. 

Optimization of communications — all communications with the client should be built in the most optimal and convenient way for the client; by introducing this principle into the company's business processes, the team directly affects the organization's revenue, its popularity in the market and the life span of customers.

Reengineering tools

Reengineering of a company's business processes is a complex process where it is necessary to work with a large amount of data, so specialized programs are used as tools.

  • Programs for managing projects and processes in which you can make a work plan, allocate resources (for example, Time Line).

  • Tools for data analysis: for example, programs where you can build graphs, charts, analyze efficiency and digital statistics.

  • Programs for modeling like ReThink, in which you can build a visualization of the process and work with it.

  • Programs for creating information systems in which you can work with the information flow.

 Possible errors

In the process of reengineering, the cost of an error is very high: after all, after some mistakes, the company's situation can become even worse. That is why it is necessary to involve professionals in reengineering, while not treating their work as a "magic pill": the whole company will have to work on implementing changes. 

Here are the most common mistakes in reengineering:

  • Insufficient redesign of business processes: «cosmetic repair» in the form of realization of separate chrome processes instead of a complete revision.

  • Lack of systematic analysis of all of a company’s business processes: an organization is an ecosystem in which one is linked to the other, one cannot fix only part of a company’s business processes without affecting the others.

  • Lack of experience and competence of the team responsible for the reengineering.

  • Misallocation of resources: Reengineering (and most often specifically changing implementation ) lacks a budget.

  • The unpreparedness of employees for drastic changes and the lack of work that would prepare them.

Reengineering results and their evaluation

As a rule, the results of the reengineering of the company's business processes appear already in the first few months. They are associated with significant systemic changes in the organization, such as: 

  • Significant cost reduction.

  • Rejection of unpromising areas of work and unprofitable assets.

  • Outsourcing of part of the processes.

  • Reduction in personnel / change in the system of work with personnel.

  • Reduction of levels in the company hierarchy.

  • A significant reduction in document flow, the level of bureaucracy, unnecessary actions.

  • Increase of key indicators and improvement of the company's image.

Examples of successful reengineering from history

IBM Credit Corporation. This division of IBM Corporation is responsible for lending to customers who purchase the company's products. There were regular difficulties due to the very long time of working with the client: the loan approval procedure took from 7 to 14 working days. As a result of competent reengineering, the division changed its business processes: the deadline for reviewing applications was reduced to 4 days, and the number of requests processed increased 100 times. 

Ford Motor. In the 80s, the company made a large-scale reengineering: thanks to the automation of the organization's processes, it managed to survive the crisis times, reducing the staff from 500 to 125 people and refusing to issue invoices to suppliers.

Introduction of the concept of lean production. The concept developed by Toyota in Japan allowed it to move from a local automobile manufacturer in Japan to become an international industry leader. At the beginning of the early 2000s many world and Russian companies began to introduce the concept of economical production on their own: among them, for example, «Rosatom», which now by right is considered one of the most efficient and profitable Russian state corporations. 

Today, our world is changing at an insane rate, so any company should be ready to change its business processes at any moment. Fortunately, technology and the global transition to online make the process faster and more painless for staff. And we’ve gotten used to being ready for change over the last couple of years, haven’t we?

26 Nov 2021

 

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