What it means
Most processes in an established organisation were not designed; they accumulated. A purchase order passes through six people because at various times each of them was added to solve a problem, and nobody has since asked whether the six are still needed.
Continuous improvement methods such as lean and Six Sigma make each step better. Reengineering asks whether the steps should exist at all.
A reengineering project typically begins by selecting a process that matters and is broken: order fulfilment, claims handling, customer onboarding, product development, the financial close. The team maps the current process end to end, measuring its cost, elapsed time, error rate and the number of hand-offs, and often finds that the work itself takes a small fraction of the elapsed time, with the rest spent waiting between steps.
It then designs the process anew from the customer's requirement backwards, applying principles that recur across successful projects: organise around outcomes, not tasks; have the people who use the output perform the process; capture information once, at source; let decisions be made where the work is done; build controls into the process rather than adding them as inspections afterwards; and use technology to enable a design that was previously impossible, not to automate the old one. The results, where the project succeeds, are typically measured in multiples rather than percentages: cycle times cut from weeks to days, costs cut by half, error rates cut by an order of magnitude.
A famous early example reduced an accounts payable department from several hundred staff to a fraction of that number by matching receipts to purchase orders at the receiving dock and eliminating the invoice entirely. The failures are as instructive as the successes.
Many projects in the 1990s were reengineering in name and headcount reduction in substance, which destroyed morale and often the knowledge the process depended on. Others redesigned processes on paper without changing the systems, roles, measures and incentives that sustained the old ones, so that the old process quietly returned.
Others attempted to reengineer everything at once and collapsed under the weight. The lessons are that BPR requires senior sponsorship, a clear process scope, involvement of the people who do the work, investment in systems and training, and a change in measures so that the new process is what people are rewarded for.
For finance, reengineering projects are both an investment to appraise and a frequent target. The financial close, procure-to-pay, order-to-cash and expense reporting are among the most commonly reengineered processes, and finance teams that have reduced a 15-day close to 3 days have usually done so by redesign rather than by working harder.
In practice
Real-world examples.
Example
A bank reengineers mortgage approval from a 30-day sequential review by four departments to a 5-day parallel process with a single underwriter and automated valuation.
Example
A manufacturer replaces a purchasing process of requisition, approval, order, receipt and three-way match with supplier-managed inventory and self-billing.
Example
A finance function reengineers its month-end close from 15 days to 4 by moving reconciliations into the month, automating intercompany matching and eliminating a management review layer.
Think of it
“BPR is throwing out old processes and designing completely new ones-radical redesign from scratch.
Formula
Calculation
BPR is a method rather than a formula. Its business case rests on:
Process Cost per Transaction = Total process cost / Transactions
Cycle Time = Elapsed time from trigger to completion
Value-Added Ratio = Time spent on value-adding work / Total cycle time
Project Return = (Annual savings + Value of improved outcomes) / One-off cost
Worked example. An insurer's motor claims process handles 60,000 claims a year. Current state:
- Steps: 14, across 5 departments, with 9 hand-offs
- Staff: 85, fully loaded cost $6,800,000 a year
- Average cycle time: 23 days, of which 4 hours is actual work (value-added ratio 0.7%)
- Cost per claim: $113
- Customer satisfaction: 62%; claims escalated to complaints: 8%
Redesign: a single claims handler owns each claim end to end; photographs and documents are captured through an app at first notification; repair authorisation up to $3,000 is automated against a pricing database; payment is made on repair completion without a separate approval; only claims above $10,000 or flagged by rules go to a specialist.
- Steps: 5, one department, 1 hand-off (specialist referral on 12% of claims)
- Staff required: 48; cost $3,900,000
- Cycle time: 4 days average; value-added ratio about 4%
- Cost per claim: $65
One-off cost: system development $1,800,000, redundancy and retraining $900,000, project team $400,000: total $3,100,000.
Annual saving in process cost = $6,800,000 minus $3,900,000 = $2,900,000
Further benefits: faster settlement reduces hire-car costs by $600,000 a year; complaints fall from 8% to 3%, saving $200,000 of handling; retention improves by 1 point, worth about $500,000 of annual premium contribution.
Total annual benefit = $4,200,000; payback = $3,100,000 / $4,200,000 = 9 months; five-year return = $21,000,000 / $3,100,000 = 6.8 times.
The risk analysis notes that the case depends on the automated authorisation working correctly (a 2% leakage rate would cost $1,200,000 a year) and includes a six-month audit of automated decisions.Case study
Seen in the real world.
A distribution company's order-to-cash process took an average of 52 days from order to cash receipt, of which 45 were payment terms and 7 were internal delay: orders were keyed from emails, checked against credit limits by a second team, picked, dispatched, invoiced two days later by a third team, and any query on the invoice restarted the clock. Errors on 11% of invoices caused an average 18-day delay on those accounts. The finance director sponsored a reengineering project with a team drawn from sales, warehouse, credit and accounts.
The redesigned process took orders through a customer portal that validated product codes, prices and credit limit at entry, generated the pick list and the invoice at dispatch in one step, and sent the invoice electronically with a link to the proof of delivery. The order desk and the separate invoicing team were merged into a single customer accounts team of 12 (from 21), retrained, and measured on invoice accuracy and days to cash rather than on orders keyed. Invoice errors fell to 1.5%, internal delay fell from 7 days to 1, and days sales outstanding fell from 58 to 47, releasing $2,700,000 of working capital.
The project cost $650,000 and the annual staff saving was $450,000, but the finance director's board report led with the working capital, which had funded a warehouse extension the company would otherwise have borrowed for. The team's own note recorded that the redesign had worked because the people who ran the old process designed the new one, and because their measures changed on the day it went live.
Watch out
Common mistakes.
- Automating the existing process rather than redesigning it, which makes a bad process faster and harder to change.
- Using reengineering as a label for cost cutting, which loses the knowledge the process depends on and the goodwill needed to make the new one work.
- Redesigning the process but leaving roles, systems, measures and incentives unchanged, so that the old process returns.
Questions
People also ask.
How is BPR different from continuous improvement?
Continuous improvement makes the existing process better in small steps. BPR replaces the process with a new design aiming at step-change results. Organisations need both.
Which processes should be reengineered?
Those that matter most to customers or cost, that are visibly broken, and where the organisation has the sponsorship and capacity to see the change through. Not everything at once.
How long does a BPR project take?
Typically six to eighteen months from mapping to full implementation for a single major process, longer where systems must be built.
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