Benchmarking

Definition

Benchmarking is defined as:

'Establishment, through data gathering, of target and comparators, that permits relative levels of
performance (and particularly areas of underperformance) to be identified. Adoption of identified
best practices should improve performance.’

'Internal benchmarking: comparing one operating unit or function with another within the same
industry.’

'Functional benchmarking: comparing internal functions with those of the best external
practitioners, regardless of their industry.’ (Also known as operational benchmarking or generic
benchmarking).

'Competitive benchmarking: in which information is gathered about direct competitors through

techniques such as reverse engineering.’

'Strategic benchmarking: type of competitive benchmarking aimed at strategic action and

organizational change.’

CIMA Official Terminology 2005

Additional definitions include:

'A systematic approach to business improvement where best practice is sought and implemented to
improve a process beyond the benchmark performance.’

Department of Trade and Industry

'Benchmarking is simply about making comparisons with others and then learning the lessons that
those comparisons throw up.’

The European Benchmarking Code of Conduct

Benchmarking exercises may involve either the whole organization, or a part of it, but always
require the involvement of more than one party or partner. They may be classified as
either results-based, which compares performance metrics, or process-based, which looks behind
the metrics to analyze the processes that generate them.
Several different types of benchmarking can be used:

 Internal Benchmarking compares one operating unit or function with another within the
same industry.
 Functional Benchmarking (also known as operational or generic benchmarking)
compares internal functions with those of the best external practitioners, regardless of their
industry.
 Competitive Benchmarking gathers information about direct competitors through
techniques such as reverse engineering.
 Strategic Benchmarking is a type of competitive benchmarking aimed specifically at
strategic action and organizational change.

The development of benchmarking is most closely associated with Xerox, which introduced the
practice in 1983.

Benchmarking programs comprise four steps:

 Identification and/or calibration of performance gap

 Clarification of the strategic impact of the benchmarked process
 Identification and implementation of process improvements or strategic changes
 Maintaining stimulus for continuous improvement.

What benefits does Benchmarking provide?

Benchmarking can help organizations to: show that performance targets can be achieved;
accelerate and manage change; and enable process improvement. It can also help them to maintain
focus on the external environment and generate an understanding of world-class performance.

Questions to consider when implementing Benchmarking

 Which activities or processes will we benchmark?

 Can we identify a suitable ‘best in class’ benchmarking partner?
 How will we overcome confidentiality issues?

Actions to take / Dos Actions to Avoid / Don'ts

 Appoint a knowledgeable and
enthusiastic ‘champion’, allowing
sufficient authority and resources
 Select the ‘right’ people – for example,
staff and managers directly involved
with the results/processes being
benchmarked
 Ensure effective co-ordination and
communication of information provided
by benchmarking partners, including the
provision of reciprocal information
 Concentrate on observing, describing
and interpreting others’ processes
 Do not focus too heavily on what is currently
being done; benchmarking offers the opportunity
to identify potential future practices and
innovative breakthroughs
 Don’t ignore organizational differences and their
impact on comparative performance; non-
transferable elements, such as employee skills
and knowledge and organizational structure, must
be recognized and allowed for
 Avoid being defensive about any negative issues
revealed by the process. The purpose of
benchmarking is to reinforce improvement rather
than to lay blame
Benchmarking Practices

Benchmarking is the search for the best practices within and across industries. There are several
reasons why organizations engage in benchmarking:

For continuous improvement of internal operations

To become more externally competitive, or

For organizational survival.

Benchmarking is usually undertaken when an organization believes that others outside the
organization have superior knowledge about processes, technology, quality or costing methods that
are beyond the organization’s current state-of-the-art.

The Benchmarking Process

The benchmarking process has been modeled by practitioners in a variety of forms. Spendolini
(1992) compared 24 models and identified a five-stage generic benchmarking model. The five
stages are:

1. The organization must decide on which activities and functions will be benchmarked.

2. A benchmarking team is coalesced.

3. Benchmarking partners are identified.

4. An analysis of the organization and its activities is undertaken and data on inputs, outputs,
flows and costs are identified and analyzed.

5. The organization takes action.

A FRAMEWORK FOR BENCHMARKING RESEARCH

Continuously comparing an organization’s performance on critical aspects of operations against

the best-in-industry or the best-in-class helps determine which activities and costs should be
targeted for improvement. The research framework developed by the authors consists of three sets
of variables that organizations desiring to benchmark (benchmarkors) others (benchmarkees)
should consider before embarking on a benchmarking project. The three sets of variables are:

1. Antecedent variables -They set up the necessary preconditions for success.

2. Contextual variables -They may modify the specific nature of the benchmarking.

3. Outcome variables - Used by the organization to gauge the overall effectiveness of a

benchmarking effort.
 Research Framework*
Antecedent Variables Contextual Variables Outcome Variables
Results of a Preliminary Competitive Scope and Areas Selected Benefits
Analysis
1. Key areas for study Non-financial Quantitative
1. Internal to organization 2. Significance of the study Measures
a. Assessment of performance in relation 3. Benchmarking gap
to target/goals. 1. Improved quality
b. Philosophy of continuous improvement Information Gathering and Sharing 2. Greater yield
c. Management intuition Method 3. Reduced defectives
4. Increased speed to market
2. External to organization 1. Type of information 5. Faster on-time delivery
a. Industry ranking a. Product 6. Increased Functionality
b. Industry comparisons b. Function (Process)
c. Customer/stakeholder feedback c. Strategic Non-financial Qualitative
Measures
Degree of Organizational Commitment 2. Method of information collection
a. Unilateral (covert) 1. Changes in employee
1. Senior management support b. Cooperative - decisions
2. Clear set of objectives Database, 2. Increased motivation and
3. Long-term commitment Indirect/Third party, satisfaction
4. Empowering organizational culture Group 3. Improved cooperation and
coordination
Prior Benchmarking Experience Partner(s) Selected 4. Better understanding of
operations
1. Extent of benchmarking experience 1. Size 5. Expanded opportunity set
2. Experienced coordinator 2. Number of partners
3. Extent of training 3. Relative position Financial Measures
a. Industry newcomers 1. Reduced cost
b. Industry leaders 2. Increased sales
4. Degree of trust 3. Increased income

Costs
1. Traceable costs
2. Non-traceable costs

* Adapted from Elnathan and Lin's Figure 1

Antecedent Variables

There are three general sets of antecedent variables:

1. Results of a preliminary competitive analysis

2. Degree of organizational commitment, and
3. Prior benchmarking experience.
Results of a Preliminary Competitive Analysis

Preliminary competitive analysis can either be internal to the organization or external to the
organization. There are three reasons why analysis internal to the organization can occur:

1. An organization could suspect that a product does not meet its design specifications.
2. The organization could be guided by a philosophy of continuous improvement.
3. Management intuition that their products, processes or strategies are not competitive.

Degree of Organizational Commitment

Management support is a critical factor in the success of benchmarking. There are several ways by
which management support can manifest itself:

1. It can aid the benchmarking team by giving them the authority necessary to motivate
employees to take the benchmarking process seriously.
2. Senior managers can authorize the necessary funding for training in benchmarking, and
the costs of benchmarking itself.
3. Senior managers have relationships with other firms that can be used to solicit others’
participation in a benchmarking program.

A clear set of objectives should be developed that will serve as a focal point of the project and
allow the organization to monitor its success. Evaluation can be problematic without a clear set of
objectives.

The organization should have long-term commitment to the project since most significant
organizational changes take up to three years.

A well-defined culture that empowers employees can facilitate the implementation of the new
system.

Prior Benchmarking Experience

The organization's ability to identify appropriate areas to be benchmarked is improved with greater
organizational experience. This experience helps the organization employ the most effective
information gathering and sharing methods. The availability and extent of training to employees
who manage and run the program is important to the success of the program implementation.

Contextual Variables

There are three general sets of contextual variables:

1. Scope and areas selected

2. Information gathering and sharing methods, and
3. Partner(s) selected.

Scope and Areas Selected

A manager should clearly identify a manageable process or a product that needs improvement
during the initial efforts at benchmarking. If the scope of the first benchmarking process is too
large and it fails, then this may discourage future efforts.
Information Gathering and Sharing Methods

There are two dimensions that relate to information gathering and sharing:

1. The type of information which benchmarking organizations collect, and

2. The method of information collection.

There are three major types of information processing: product, function (process) and strategic.
The two major methods of information collection for benchmarking are:

1. Unilateral (Covert) benchmarking - Companies independently gather information about

one or several other companies that excel in the area of interest.
2. Cooperative Benchmarking - Involves the voluntary sharing of information through
mutual agreement. It includes:

Databases: Typically pay a fee to gain access.

Indirect/Third Party: Involves hiring outside consultant to act as a liaison between the firms.
Group: Participants meet openly to discuss their methods.

Partners Selected

Some researchers argue that the size of benchmarking partners should be comparable while others
believe it is not a critical requirement.

The number of benchmarking partners in a project follows the law of diminishing returns. Truthful
and timely information is essential for successful benchmarking.

Outcome Variables

The incentives for benchmarking the organization need to be understood since decision makers
only select courses of action where the expected benefits exceed the expected costs.

Benefits

The authors suggest that the overarching measure is whether benchmarking objectives were met.
Performance measures can be divided into financial and non-financial measures of outcomes or
benefits. These measures are presented in figure 1.

Costs

The costs can be divided into:

1. Traceable costs - Include out-of-pocket expenditures.

2. Non traceable costs - Those associated with the cultural change in the organization and
the potential resistance to change.
Roles for Benchmarking in Management Accounting

Management accounting is usually considered a finance function. Benchmarking in this area is

being used in two ways:

1. It is directed towards planning and budgeting processes, billing, accounts receivable,

accounting systems development, payroll, credit and collections, financial analysis, and
internal auditing.

2. Benchmarking the operations level of both manufacturing and service organizations.

Benchmarking An ABCM System

The development of an ABCM system is done internally and is based on historical costs. The
authors argue that information provided by internal ABCM analysis alone is not sufficient since
benchmarks derived from this kind of process may be suboptimal and noncompetitive. Therefore,
the authors suggest that an organization needs to seek appropriate external benchmarks in order to
improve performance and to use ABCM information more effectively.

Additional Research Needed on Benchmarking

The authors briefly discuss five ideas for further research.

1. Empirical investigations of the relative weight or best combination of variables in

their framework for successful benchmarking.

2. Studies of various types of benchmarking related to products, functions and

strategies as related to management accounting systems.

3. Studies related to the most effective method of information sharing and

gathering, and partner selection.

4. Research on modeling of functional cross-industry cooperative benchmarking to

test predictions.

5. Studies related to combinations of nonfinancial and financial measures, and costs

and benefits.
 Downsizing
Definition
Downsizing is the 'conscious use of permanent personnel reductions in an attempt to
improve efficiency and/or effectiveness' (Budros, 1999, p.70). Since the 1980s, downsizing has
gained strategic legitimacy (McKinley et al., 2000; Boone, 2000; Cameron et al., 1991). Indeed,
recent research on downsizing in the US (Baumol et al, 2003
Evolution of the Concept
The term 'downsizing' was introduced around 1988. It became a management catch-cry of
the 1990's which became known as the downsizing decade. Many associated euphemisms became
part of managerial lexicon in the 1990'sand continued into the new millennium. A number of terms
are substituted for organizational downsizing leading to mystification about the meaning, rationale,
motive and purpose of downsizing. Researchers Gandolfi and Neck (2003) tabled fifty-four terms
that are associated with downsizing. Some of these euphemisms attempt to give downsizing a
positive glow while some may appear hyperbolic. All these terms are not always euphemisms.
There are many instances when some terms are used by design and may actually be more accurate
than downsizing. In the Tata Steel case ( Kumar,2004), it was called 'Rightsizing', because at the
same time that the Company was reducing employee numbers, fresh recruitments were taking
place to man a new technology plant with better skilled manpower.

While the impetus of downsizing appears to be a desire to reduce costs, increase

productivity and overall competitiveness (Cascio,1993), cutting costs as a principal means of
improving organizational performance cannot be seen as a panacea. "The review of the downsizing
literature portrays an overwhelmingly negative picture of downsizing. Steven Roach, Chief
Economist of the American investment bank, Morgan Stanley was one of the main architects of the
theory of downsizing has also publicly declared that tactics of downsizing can be recipes for
organizational extinction (Gandolfi and Neck, 2003)."

While downsizing in the early stages was undertaken when organizations were in decline,
later it was observed that reducing the workforce is not always a cost - focused reaction to
economic problems. It can also be proactive, a pivotal element to the organization's long-term
business strategy. Also while initially only blue collared workers were targeted; later white
collared workers also were the targets for reduction.

Casey et al.(1997), state that although the character of corporate downsizing may be
changing from solely decreasing the number of individuals employed to changing the composition
of jobs and work processes through organizational restructuring, the modern worker's employment
status remains tenuous and subject to radical change.
 The purpose of downsizing is to provide a means to improve organizational performance
(Kozlowski et ai, 1993 cited in Thornhill, 2000). The longer-term aim could be to realize
improvements related to greater effectiveness, efficiency, productivity and competitiveness.
Downsizing is not an isolated event; it is a process, a subsystem interrelated with other business
and management subsystems.

"The extensive academic research in disciplines of organizational change and change

management suggests that the phenomenon of downsizing is more than a management fad and has
become a way of life for profit and non - profit organizations embracing society as a whole
(Gandolfi and Neck, 2003:20)".

"Downsizing is an organizational level concept whereas redundancy is approached at the

level of the individual. Following from this differentiation, downsizing should be approached as a
strategic issue whereas redundancy is an operational one (Thornhill, 2000:252)".

Contesting Definitions
Downsizing is still regarded by many scholars as the most pervasive, yet understudied
phenomenon in the business world (Gandolfi and Neck, 2003). There are a number of definitions
of downsizing. At one end of the continuum,·Cameron (19;94:91) who is considered an authority
on downsizing takes a holistic approach in defining downsizing as a "set of activities undertaken
on part of the management of an ; organization and designed to improve organizational efficiency,
productivity and/or competitiveness". Cameron (1994) identified four major attributes of
organizational downsizing. First, downsizing is an intentional set of activities requiring
organizational action; second, reducing the number of employees; third, improving efficiency to
contain or decrease costs, to enhance revenues, or to increase competitiveness; fOl:lrth, influencing
work processes and leading to work redesign.

At the other end of the continuum, another expert, Cascio (1993:45 cited in Gandolfi and
Neck(2003) states that downsizing is not to increase organizational performance per se, but the
eradication of the workforce by the "planned elimination of positions or jobs".

"In its widest sense, downsizing may be seen as a complete strategic transformation
endeavour to change an organizations work processes, corporate culture, values, attitudes and
mission. In its most narrow sensei downsizing may be seen as a set of activities introduced to make
an organization cost effective. In its most extreme form, downsizing may turn into an across the
board cut in personnel
 (De Vries and Balazs, 1997 cited in Gandolfi and Neck, 2003)". According to Legatski
(1998:259), downsizing is defined as "a deliberate reduction in the size or complexity of a firm's
activities intended to improve the profitability, productivity, and/or competitiveness of the firm/s
continuing operations".

However, Thornhill and Saunders, 1998 (cited in Thornhill, 2000) state that, "downsizing is
a form of organizational restructuring, which aims to improve a company's overall performance by
creating effectiveness, efficiency, productivity, and/or competitiveness. This can be a proactive or
reactive restructuring strategy that may or may not result in the elimination of the workforce. It is a
goal oriented strategy to increase the organization's overall performance." This definition does not
specify reduction of employees as essential. We can see that in this definition the workforce
reduction dimension of downsizing is getting embedded in a growth dimension.

Management of Downsizing
There are three organizational strategies to achieve downsizing that can be used
independently or in conjunction with each other (Cameron et ai, 1991, 1993, cited in Thornhill,
2000:256). The first is the workforce reduction strategy, which focuses simply on reducing an
organization's headcount. The second is the organization redesign strategy, which involves
elements of de-layering, eliminating areas of work and job redesign, so that the amount of work is
reduced as well as the organization's headcount. The third is the systemic change strategy which is
a longer term approach intended to promote a more fundamental change that affects the culture of
the organization through promotion of employee involvement and adherence to a continuous
improvement strategy. Downsizing may be implemented solely through reducing an organization's
head count or in combination" with one or more other strategies.

The management of change implications arising from an organization's choice of strategy

for downsizing will also be related to the extent to which the approach adopted is proactive or
reactive (KozlowSki et ai, 1993 cited in Thornhill, 2000).A proactive downsizing strategy is likely
to be integrated with the organization's business strategy, target organizational areas and
competencies for downsizing selectively, and recognize the potential consequences from both
organizational and individual perspectives. The recognition of potential consequences is also likely
to lead to the development of interventions to alleviate or manage their incidence.

Proactivity, therefore implies careful planning throughout the stages of downsizing. A

reactive approach, in contrast is unlikely to consider all these aspects and the aim would be limited
to reducing organizational costs and lead to creation of negative consequences in relation to
remaining employees. "The North American literature suggests that a reactive approach to
downsizing may be more frequently used than a proactive one. This may be because managers may
have very little time to plan and develop interventions to alleviate and manage the consequences of
downsizing for those who survive" (Thornhill, 2000:257
 Downsizing has become a major organizational change strategy that superficially seems to
call for just a structural change but is in reality highly complex and can often generate a range of
reactions that undermine an organization's objective of downsizing. Therefore, there is a need to
focus on the human aspects of change.

As a goal oriented restructuring strategy, downsizing endeavors to increase an

organization's overall performance. However, the consequences of downsizing have proven to be
persistently negative. Organizations embarking upon downsizing have largely failed to accomplish
their stated and desired objectives. The execution is not confined to economic and organizational
consequences but affects the entire workforce.

The use of human resource (HR) strategies is integrally linked to the management of
organizational change and downsizing in particular, to avoid or manage the reactions which
downsizing generates. HR strategies will always be subject to the political interests of the dominant
groups in organizations who design and use them. "Theory may be. flawed because it reflects noble
aspirations as well as being logical and rational. Practice, by contrast, reflects the varying interests
of people.
A sound theory needs to recognize the limitations that are built into strategies and systems
devised by people, especially where one's interests have dominated their design (Thornhill,
2000:8)".

Change and HR strategies are designed by leaders. The steps of downsizing require both
leadership and management. All managers need to be prepared to communicate internally and
externally. They are looked to as sources of factual information. All stakeholders draw conclusions
and construct action steps based on management's communication with them. All managers need to
be well briefed on what to say and how to say it, and they also need to be debriefed to capture
feedback. Each level of management has a significant role to play in successfully managing the
downsizing process and outcome.

For the corporate intentions of an organization to be realized it is necessary to consider and

manage the process from the perspective of affected individuals and work groups and the stresses
that downsizing creates. Therefore, Thornhill et al (ZOOO) recommend both a top-down and
bottom up approach in executing downsizing. Downsizing places demands upon the organization,
work groups, and individual employees, and requires a process of coping and adaptation. The
downsizing process may create in employees negative psychological and behavioral reactions that
may hamper achievement of 'intended change or lead to unintended changes in the organization. As
a structural change adversely affecting the retention of people's jobs its incidence will be highly
transparent and pervasive.
 Downsizing therefore requires proactive facilitation if intended change is to be achieved. In
practice, this may not happen and reactive interventions to achieve originally intended change are
normal. Most of the negative consequences are due to inappropriate or ineffective HR "and
communication interventions (Thornhill et ai,2000).

Highlights
In summary, downsizing has attained the status of a restructuring strategy that inevitably
impacts on a company's size, costs, and work processes. It can be used by organizations on the
decline or as part of a growth strategy. It can be reactive and defensive or proactive and
anticipatory.

The purpose of downsizing is to provide a means to improve organizational performance

through improvements related to greater effectiveness, efficiency, productivity and
competitiveness. Downsizing is an organizational level concept and should be approached as a
strategic issue whereas redundancy is an operational one.

Downsizing may be implemented solely through reducing an organization's head count or

in combination with the other strategies of organizational redesign or systemic change. Downsizing
can often generate a range of reactions that undermine an organization's objective of downsizing.
Therefore, there is a need to focus on the human aspects of change. Each level of management has
a significant role to play in successfully managing the downsizing process and outcome.
Downsizing requires proactive facilitation if intended change is to be achieved.

Use of Metaphors in Implementation of Downsizing

Communication is a two way process encompassing telling, explaining, discussing,
consulting and negotiating. Establishing constructive feedback mechanisms that demonstrate that
employee views are worthy of consideration is often the most difficult part of the communication
process. Neglect of communication is a management failure allowing false ideas and distorted
concepts to form and gain currency by default. Lack of communication or inability to communicate
clearly can lead to industrial unrest, job dissatisfaction and operational inefficiency. Good
communication can lead to more harmonious working relationships, understandings of commercial
conditions, the acceptance of change and the improvement of productivity (Wilkinson, 1989).

A variety of factors shape employees thinking. Employees weigh the information in a very
personal way, sizing up the situation and drawing conclusions that reflect their own slant or
viewpoint.
 Frequently people develop a negative mindset about organizational change such as
downsizing based on misinterpretation, faulty assumptions, motives or wrong headed thinking in
general. Employees interpret the upheaval in a warped manner and come to wrong conclusions.
The result is a collection of misperceptions about change. It is important to not only challenge these
misperceptions but prevent them from developing at all through organizational communication.

Transformation of an organization through downsizing implies more than incremental

change,· which is a step wise improvement of existing conditions. Transformation involves a
revolutionary and paradigmatic change wherein the belief systems, collective perceptions, feelings,
thought processes, actions, basic assumptions and relationships may change. A true transformation
involves a change in culture (Sackmann, 1989). For this challenging accomplishment of changing
beliefs and basic assumptions that are collectively held in the entire organization and to make
people see the current reality in a different light through establishing in them a different mechanism
for interpretation of events, use of metaphors in language can prove useful.

The concepts that govern our thoughts also govern our everyday functioning. Our concepts
structure how we perceive, how we get around the world and how we relate to other people. Our
conceptual system plays a central role in defining our everyday realities. Since communication is
based on the same conceptual system that we use in thinking and acting, language is an important
source of evidence for what the system is like. The essence of metaphor is understanding and
experiencing one kind of thing in terms of another. Human thought processes are largely
metaphorical. Metaphors as linguistic expressions are possible precisely because there are
metaphors In a person's conceptual system. Metaphors, as mental pictures, can be used to
conceptualize, understand, and explain vague or unfamiliar phenomena to the employees.
Metaphors can help refocusing on the familiar and show it in a new light.

This can help in 'de-freezing the status quo. Metaphors can provide a clear picture <if the
future and the tangible actions that may require to be taken. As metaphors carry connotations on a
cognitive, emotional and behavioral level in a holistic way, they can influence the way people
construct reality and may lead to activities and outcomes that are desired to transform
organizations.

Thus, metaphorical language not only influences perceptions but also subsequent actions,
Metaphors are being increasingly used in organizational theory to understand organizational
situations and problems. Metaphor-based analysis is now used in varied areas of organizational
practice such as strategy, organizational development, information technology, organizational
culture, organizational change, human resource development, industrial relations, group
development, decision-making and leadership (Dunford and Palmer, 1996).
 It is unfortunate that the communicative power of metaphor is not fully exploited by
managers and practitioners in managing change in organizations. This is largely because MBA
curricula and the plethora of managerial literature on change management focuses more on the
process and the steps to be taken to bring about the change rather than the humanistic and
communicative aspects of the process.

For example, transparency in communication with employees may be stated as a precursor

to building trust, but the literature will fail to detail for the implementers, how the perceptions
about transparency need to be managed and how transparency is hot merely limited to open
communication but will also involve the management and development of communicative
understandings amongst the various collective audiences. The aspect of 'how' is presumed to be
understood by the managers, who lap up this literature. Yet, they may show a repetitive tendency
to fail in the execution of the change process. Most managers hesitate to plead ignorance about the
'how' as it might reflect on their competence and so they get destined to learn through trial and
error, but at high social cost for the organization. This view is supported by Lewis and Seibold
(1998: 115) where they state that while user participation has been noted as important in the
change implementation literature, there is considerable ignorance as to the mechanics of user
involvement. They found that practitioner oriented literature has only a handful of articles that
make any reference to specific communicative tactics of implementation. For example, an author
may suggest "involving key stakeholders" without offering specific tactics for accomplishing this
end. While such recommendations are valid, they fail to offer concrete plans of action. Strategic
change implementation typically receives the least attention by senior management as it is
presumed to be following the planning.

Just as managers might use metaphors, consciously or unconsciously, to influence

employees, the employees too can use counter metaphors reflecting attitudes and claims that may
hinder the intentions of management. If the management is ignorant about the methods of
recognition and value of metaphors, an essential dialogue is missed that can only lead to
misunderstandings and conflict. Organizational goals can thus be threatened. The numbers of
failures in managing change smoothly are largely attributed to human relations and
communication failures. There is therefore, an urgent need to sensitize managers on. the
communicative complexities of managing change since communication may be handled quite
presumptuously by them.

DOWNSIZING PROCESS
Redundancy, despite the practice that managers have had in undertaking it of late, is often
badly managed with many negative consequences. In part this may stem from the rarity of formal
redundancy procedures. However, there is much to be gained from a humane and strategic
approach to downsizing. According to Cameron (1994, 1998), the way downsizing is implemented
is more important that the fact that it is implemented. He reports on three approaches to
downsizing.
 Workforce reduction strategies are focused primarily on reducing headcount and are
usually implemented in a top-down, speedy way. However, the downside of such an approach is
that it is seen as the “equivalent to throwing a grenade into a crowded room, closing the door and
expecting the explosion to eliminate a certain percentage of the workforce. It is difficult to predict
exactly who will be eliminated and who will remain”(Cameron,1994,p197),but it grabs the
immediate attention of the workforce to the condition that exists. Because of the quick
implementation associated with the workforce reduction strategy, management does not have time
to think strategy through and communicate it properly to employees.

This may result in a low "perceived distributive fairness" (Brockner et al, 1987). As a
result, employees may be negatively affected by the stress and uncertainty created by this type of
downsizing (Greenhalgh, 1983) and may react with reduced organizational commitment, less job
involvement, and reduced work efforts (Byrne, 1994; Greenhalgh, 1983).

Secondly, work redesign strategies, aimed at reducing work (in addition to or instead of
reducing the number of workers) through redesigning tasks, reducing work hours, merging units,
etc. However, these are difficult to implement swiftly and hence are seen as a medium-term
strategy. Thirdly, systematic strategies focus more broadly on changing culture, attitude and
values not just changing work force size. This involves “redefining downsizing as a non- going
process, as a basis for continuous improvement; rather than as a programme or a target.
Downsizing is also equated with simplification of all aspects of the organization - the entire
system including supplies, inventories, design process, production methods, customer relations,
marketing and sales support, and so on” Cameron (1994, p 199). Again, this strategy requires
longer-term perspectives and is more consistent with the ideas of TQM (Hill and Wilkinson, 1995;
Wilkinson et al 1998).
Three Types of Downsizing Strategies

Workforce Work Redesign Systemic

Reduction

Focus Headcount Jobs, levels, units Culture

Eliminate People Work Status quo

Implementation Quick Moderate Extended

time

Payoff target Short-term payoff Moderate-term Long-term payoff

payoff

Inhibits Long-term Quick payback Short term cost

adaptability savings

Examples Attrition Combine functions Involve everyone

Layoffs Merge units Simplify everything

Early retirement Redesign jobs Bottom-up change

Buy-out packages Eliminate layers Target hidden

costs

Source: Cameron 1994

Cascio (2002) looks at the issue of restructuring and argues that organizations can be
divided into two groups with quite different approaches to their staff. One group of firms, saw
employees as costs to be cut. The other, much smaller group of firms, saw employees as assets to be
developed.

Employees as costs to be cut - emphasis on the minimum number of employees needed to run the
company and the irreducible core numbers of employees that the business requires.

Employees as assets to be developed - emphasis on changing the way business is done, so that
people can be used more effectively.
As Cascio note
"The downsizers see employees as commodities - like paper clips or light bulbs,
interchangeable and substitutable one for another. This is a "plug in" mentality: plug them in when
you need them; pull the plug when you not longer need them. In contrast, responsible restructurers
see employees as sources of innovation and renewal. They see in employees the potential to grow
their businesses" (Cascio, 2002, p. 84).
 Sahdev (2003) suggest that the main focus of HR appears to be in implementing the
procedural aspects of redundancy, including fair selection and provision of outplacement services
for the leavers. While this is in keeping with the organizational justice approach, the contributions
need to be directed towards managing the strategic aspects of decision-making processes with a
view to managing survivors effectively. He suggests that HR practitioners need to be influential at
both the strategic and operational levels, in order to manage survivors effectively and thereby
enable the organization to sustain competitiveness. Chadwick et al (2004) confirm that downsizing
is more likely to be effective in the longer term when accompanied by accompanied by practices
that reinforce the contribution of HR. e.g. extensive communication, respectful treatment of
redundant employees and attention to survivors concerns over job security.

Many problems relate to a low level of trust between those making decisions and those
receiving them. A convincing rationale for downsizing is essential as is a degree planning. Having
said that the process needs to be dynamic to take account of consultation with employees (Hunter,
2000, p3).

As Hunter notes
"Clarity of purpose, credible, two way communication and attention to the psychological
and economic well being of employees are hallmarks of effective downsizing. This should not be a
surprise: these characteristics reflect good strategic and human resource management.
Organizations that downsize skillfully are likely to be well-managed and it would be surprising if
those that are badly managed could master such a process" (Hunter, 2000, p4).
 Theory of Constraints

Definition:

The Theory of Constraints is a methodology for identifying the most important limiting
factor (i.e. constraint) that stands in the way of achieving a goal and then systematically
improving that constraint until it is no longer the limiting factor. In manufacturing, the constraint
is often referred to as a bottleneck.

The Theory of Constraints takes a scientific approach to improvement. It hypothesizes that

every complex system, including manufacturing processes, consists of multiple linked activities,
one of which acts as a constraint upon the entire system (i.e. the constraint activity is the “weakest
link in the chain”).

So what is the ultimate goal of most manufacturing companies? To make a profit – both in
the short term and in the long term. The Theory of Constraints provides a powerful set of tools for
helping to achieve that goal, including:

 The Five Focusing Steps (a methodology for identifying and eliminating constraints)
 The Thinking Processes (tools for analyzing and resolving problems)
 Throughput Accounting (a method for measuring performance and guiding management
decisions)

Dr. Eliyahu Goldratt conceived the Theory of Constraints (TOC), and introduced it to a
wide audience through his bestselling 1984 novel, “The Goal”. Since then, TOC has continued to
evolve and develop, and today it is a significant factor within the world of management best
practices.

One of the appealing characteristics of the Theory of Constraints is that it inherently

prioritizes improvement activities. The top priority is always the current constraint. In
environments where there is an urgent need to improve, TOC offers a highly focused
methodology for creating rapid improvement.
A successful Theory of Constraints implementation will have the following benefits:

 Increased profit (the primary goal of TOC for most companies)

 Fast improvement (a result of focusing all attention on one critical area – the system
constraint)
 Improved capacity (optimizing the constraint enables more product to be manufactured)
 Reduced lead times (optimizing the constraint results in smoother and faster product flow)
 Reduced inventory (eliminating bottlenecks means there will be less work-in-process)

B AS I CS O F T O C

Core Concept

The core concept of the Theory of Constraints is that every process has a single constraint
and that total process throughput can only be improved when the constraint is improved. A very
important corollary to this is that spending time optimizing non-constraints will not provide
significant benefits; only improvements to the constraint will further the goal (achieving more
profit).

Thus, TOC seeks to provide precise and sustained focus on improving the current
constraint until it no longer limits throughput, at which point the focus moves to the next
constraint. The underlying power of TOC flows from its ability to generate a tremendously strong
focus towards a single goal (profit) and to removing the principal impediment (the constraint) to
achieving more of that goal. In fact, Goldratt considers focus to be the essence of TOC.

The Five Focusing Steps

The Theory of Constraints provides a specific methodology for identifying and eliminating
constraints, referred to as the Five Focusing Steps. As shown in the following diagram, it is a
cyclical process.
 The Theory of Constraints uses a process known as the Five Focusing Steps to identify and
eliminate constraints (i.e. bottlenecks).

Step Objective

Identify Identify the current constraint (the single part of the process that limits the rate at which
the goal is achieved).

Exploit Make quick improvements to the throughput of the constraint using existing resources (i.e.
make the most of what you have).

Subordinate Review all other activities in the process to ensure that they are aligned with and truly
support the needs of the constraint.

Elevate If the constraint still exists (i.e. it has not moved), consider what further actions can be
taken to eliminate it from being the constraint. Normally, actions are continued at this step
until the constraint has been “broken” (until it has moved somewhere else). In some cases,
capital investment may be required.
 Repeat The Five Focusing Steps are a continuous improvement cycle. Therefore, once a
constraint is resolved the next constraint should immediately be addressed. This step is a
reminder to never become complacent – aggressively improve the current constraint…and
then immediately move on to the next constraint.

The Five Focusing Steps are further described in the following table.

The Thinking Processes

The Theory of Constraints includes a sophisticated problem solving methodology called

the Thinking Processes. The Thinking Processes are optimized for complex systems with many
interdependencies (e.g. manufacturing lines). They are designed as scientific “cause and effect”
tools, which strive to first identify the root causes of undesirable effects (referred to as UDEs),
and then remove the UDEs without creating new ones.

The Thinking Processes are used to answer the following three questions, which are essential to
TOC:

 What needs to be changed?  What actions will cause the change?

 What should it be changed to?
Examples of tools that have been formalized as part of the Thinking Processes include:

Tool Role Description

Current Reality Documents the Diagram that shows the current state, which is unsatisfactory
Tree current state. and needs improvement. When creating the diagram, UDEs
(symptoms of the problem) are identified and traced back to
their root cause (the underlying problem).

Evaporating Evaluates potential Diagram that helps to identify specific changes (called
Cloud Tree improvements. injections) that eliminate UDEs. It is particularly useful for
resolving conflicts between different approaches to solving a
problem. It is used as part of the process for progressing
from the Current Reality Tree to the Future Reality Tree.

Future Reality Documents the future Diagram that shows the future state, which reflects the
Tree state. results of injecting changes into the system that are designed
to eliminate UDEs.

Strategy and Provides an action Diagram that shows an implementation plan for achieving
Tactics Tree plan for improvement. the future state. Creates a logical structure that organizes
knowledge and derives tactics from strategy. Note: this tool
 Tool Role Description

is intended to replace the formerly used Prerequisite Tree in

the Thinking Processes.

Throughput Accounting

Throughput Accounting is an alternative accounting methodology that attempts to

eliminate harmful distortions introduced from traditional accounting practices – distortions that
promote behaviors contrary to the goal of increasing profit in the long term.

In traditional accounting, inventory is an asset (in theory, it can be converted to cash by

selling it). This often drives undesirable behavior at companies – manufacturing items that are not
truly needed. Accumulating inventory inflates assets and generates a “paper profit” based on
inventory that may or may not ever be sold (e.g. due to obsolescence) and that incurs cost as it sits
in storage.

The Theory of Constraints, on the other hand, considers inventory to be a liability –

inventory ties up cash that could be used more productively elsewhere.

In traditional accounting, there is also a very strong emphasis on cutting expenses. The
Theory of Constraints, on the other hand, considers cutting expenses to be of much less
importance than increasing throughput. Cutting expenses is limited by reaching zero expenses,
whereas increasing throughput has no such limitations.

These and other conflicts result in the Theory of Constraints emphasizing Throughput
Accounting, which uses as its core measures: Throughput, Investment, and Operating Expense.

Core Measures Definition

Throughput The rate at which customer sales are generated less truly variable costs (typically
raw materials, sales commissions, and freight). Labor is not considered a truly
variable cost unless pay is 100% tied to pieces produced.

Investment Money that is tied up in physical things: product inventory, machinery and
equipment, real estate, etc. Formerly referred to in TOC as Inventory.

Operating Money spent to create throughput, other than truly variable costs (e.g. payroll,
Expense utilities, taxes, etc.). The cost of maintaining a given level of capacity.
 In addition, Throughput Accounting has four key derived measures: Net Profit, Return on
Investment, Productivity, and Investment Turns.

Net Profit = Throughput − Operating Expenses

Return on Investment = Net Profit / Investment

Productivity = Throughput / Operating Expenses

Investment Turns = Throughput / Investment

In general, management decisions are guided by their effect on achieving the following
improvements (in order of priority):

 Will Throughput be increased?

 Will Investment be reduced?
 Will Operating Expenses be reduced?

The strongest emphasis (by far) is on increasing Throughput. In essence, TOC is saying to focus
less on cutting expenses (Investment and Operating Expenses) and focus more on building sales
(Throughput).

Drum-Buffer-Rope

Drum-Buffer-Rope (DBR) is a method of synchronizing production to the constraint while

minimizing inventory and work-in-process.

The “Drum” is the constraint. The speed at which the constraint runs sets the “beat” for
the process and determines total throughput.

The “Buffer” is the level of inventory needed to maintain consistent production. It ensures
that brief interruptions and fluctuations in non-constraints do not affect the constraint. Buffers
represent time; the amount of time (usually measured in hours) that work-in-process should arrive
in advance of being used to ensure steady operation of the protected resource. The more variation
there is in the process the larger the buffers need to be. An alternative to large buffer inventories
is sprint capacity (intentional overcapacity) at non-constraints. Typically, there are two buffers:

 Constraint Buffer (immediately before the constraint; protects the constraint)

 Customer Buffer (at the very end of the process; protects the shipping schedule)
 The “Rope” is a signal generated by the constraint indicating that some amount of
inventory has been consumed. This in turn triggers an identically sized release of inventory into
the process. The role of the rope is to maintain throughput without creating an accumulation of
excess inventory.

T H E NAT URE O F CO NS T RAI NT S

What are Constraints?

Constraints are anything that prevents the organization from making progress towards its
goal. In manufacturing processes, constraints are often referred to as bottlenecks. Interestingly,
constraints can take many forms other than equipment.

There are differing opinions on how to best categorize constraints; a common approach is shown
in the following table.

Constraint Description

Physical Typically equipment, but can also be other tangible items, such as material shortages, lack
of people, or lack of space.

Policy Required or recommended ways of working. May be informal (e.g. described to new
employees as “how things are done here”). Examples include company procedures (e.g.
how lot sizes are calculated, bonus plans, overtime policy), union contracts (e.g. a contract
that prohibits cross-training), or government regulations (e.g. mandated breaks).

Paradigm Deeply engrained beliefs or habits. For example, the belief that “we must always keep our
equipment running to lower the manufacturing cost per piece”. A close relative of the
policy constraint.

Market Occurs when production capacity exceeds sales (the external marketplace is constraining
throughput). If there is an effective ongoing application of the Theory of Constraints,
eventually the constraint is likely to move to the marketplace.

There are also differing opinions on whether a system can have more than one constraint.
The conventional wisdom is that most systems have one constraint, and occasionally a system
may have two or three constraints.
 In manufacturing plants where a mix of products is produced, it is possible for each
product to take a unique manufacturing path and the constraint may “move” depending on the
path taken. This environment can be modeled as multiple systems – one for each unique
manufacturing path.

Policy Constraints

Policy constraints deserve special mention. It may come as a surprise that the most
common form of constraint (by far) is the policy constraint.

Since policy constraints often stem from long-established and widely accepted policies,
they can be particularly difficult to identify and even harder to overcome.

It is typically much easier for an external party to identify policy constraints, since an
external party is less likely to take existing policies for granted.

When a policy constraint is associated with a firmly entrenched paradigm (e.g. “we must
always keep our equipment running to lower the manufacturing cost per piece”), a significant
investment in training and coaching is likely to be required to change the paradigm and eliminate
the constraint.

Policy constraints are not addressed through application of the Five Focusing Steps.
Instead, the three questions discussed earlier in the Thinking Processes section are applied:

 What needs to be changed?

 What should it be changed to?
 What actions will cause the change?

The Thinking Processes are designed to effectively work through these questions and
resolve conflicts that may arise from changing existing policies.

S I MPL I FI E D RO A DMA P

An excellent way to deepen your understanding of the Theory of Constraints is to walk

through a simple implementation example. In this example, the Five Focusing Steps are used to
identify and eliminate an equipment constraint (i.e. bottleneck) in the manufacturing process.

Step One – Identify the Constraint

In this step, the manufacturing process is reviewed to identify the constraint. A simple but
often effective technique is to literally walk through the manufacturing process looking for
indications of the constraint.
 Item Description

WIP Look for large accumulations of work-in-process on the plant floor. Inventory often
accumulates immediately before the constraint.

Expedite Look for areas where process expeditors are frequently involved. Special attention and
handholding are often needed at the constraint to ensure that critical orders are completed
on time.

Cycle Time Review equipment performance data to determine which equipment has the longest average
cycle time. Adjust out time where the equipment is not operating due to external factors,
such as being starved by an upstream process or blocked by a downstream process.
Although such time affects throughput, the time loss is usually not caused or controlled by
the starved/blocked equipment.

Demand Ask operators where they think equipment is not keeping up with demand. Pay close
attention to these areas, but also look for other supporting indicators.

The deliverable for this step is the identification of the single piece of equipment that is
constraining process throughput.

Step Two – Exploit the Constraint

In this step, the objective is to make the most of what you have – maximize throughput of
the constraint using currently available resources. The line between exploiting the constraint (this
step) and elevating the constraint (the fourth step) is not always clear. This step focuses on quick
wins and rapid relief; leaving more complex and substantive changes for later.

Item Description

Buffer Create a suitably sized inventory buffer immediately in front of the constraint to
ensure that it can keep operating even if an upstream process stops.

Quality Check quality immediately before the constraint so only known good parts are
processed by the constraint.
 Item Description

Continuous Ensure that the constraint is continuously scheduled for operation (e.g. operate the
Operation constraint during breaks, approve overtime, schedule fewer changeovers, cross-train
employees to ensure there are always skilled employees available for operating the
constraint).

Maintenance Move routine maintenance activities outside of constraint production time (e.g.
during changeovers).

Offload (Internal) Offload some constraint work to other machines. Even if they are less efficient, the
improved system throughput is likely to improve overall profitability.

Offload (External) Offload some work to other companies. This should be a last resort if other
techniques are not sufficient to relieve the constraint.

The deliverable for this step is improved utilization of the constraint, which in turn will
result in improved throughput for the process. If the actions taken in this step “break” the
constraint (i.e. the constraint moves) jump ahead to Step Five. Otherwise, continue to Step Three.

Step Three – Subordinate and Synchronize to the Constraint

In this step, the focus is on non-constraint equipment. The primary objective is to support
the needs of the constraint (i.e. subordinate to the constraint). Efficiency of non-constraint
equipment is a secondary concern as long as constraint operation is not adversely impacted.

By definition, all non-constraint equipment has some degree of excess capacity. This
excess capacity is a virtue, as it enables smoother operation of the constraint. The manufacturing
process is purposely unbalanced:

Item Description

Upstream Upstream equipment has excess capacity that ensures that the constraint buffer is
continuously filled (but not overfilled) so that the constraint is never “starved” by
the upstream process.
 Item Description

Downstream Downstream equipment has excess capacity that ensures that material from the
constraint is continually processed so the constraint is never “blocked” by the
downstream process.

Some useful techniques for this step include:

Item Description

DBR Implement DBR (Drum-Buffer-Rope) on the constraint as a way of synchronizing

the manufacturing process to the needs of the constraint.

Priority Subordinate maintenance to the constraint by ensuring that the constraint is always
the highest priority for maintenance calls.

Sprint Add sprint capacity to non-constraint equipment to ensure that interruptions to their
operation (e.g. breakdowns or material changes) can quickly be offset by faster
operation and additional output.

Steady Operate non-constraint equipment at a steady pace to minimize stops. Frequent

Operation inertial changes (i.e. stops and speed changes) can increase wear and result in
breakdowns.

The deliverable for this step is fewer instances of constraint operation being stopped by
upstream or downstream equipment, which in turn results in improved throughput for the process.
If the actions taken in this step “break” the constraint (i.e. the constraint moves) jump ahead to
Step Five. Otherwise, continue to Step Four.

Step Four – Elevate Performance of the Constraint

In this step, more substantive changes are implemented to “break” the constraint. These
changes may necessitate a significant investment of time and/or money (e.g. adding equipment or
hiring more staff). The key is to ensure that all such investments are evaluated for effect iveness
(preferably using Throughput Accounting metrics).
 Item Description

Performance Data Use performance data (e.g. Overall Equipment Effectiveness metrics plus down time
analytics) to identify the largest sources of lost productive time at the constraint.

Top Losses Target the largest sources of lost productive time, one-by-one, with cross-functional
teams.

Reviews Implement ongoing plant floor reviews within shifts (a technique called Short
Interval Control) to identify tactical actions that will improve constraint
performance.

Setup Reduction Implement a setup reduction program to reduce the amount of productive time lost
to changeovers.

Updates/Upgrades Evaluate the constraint for potential design updates and/or component upgrades.

Equipment Purchase additional equipment to supplement the constraint (a last resort).

The deliverable for this step is a significant enough performance improvement to break the
constraint (i.e. move the constraint elsewhere).

Step Five – Repeat the Process

In this step, the objective is to ensure that the Five Focusing Steps are not implemented as
a one-off improvement project. Instead, they should be implemented as a continuous
improvement process.

Item Description

Constraint Broken If the constraint has been broken (the normal case), recognize that there is a new
constraint. Finding and eliminating the new constraint is the new priority (restart at
Step One).
 Item Description

Constraint Not If the constraint has not been broken, recognize that more work is required, and a
Broken fresh look needs to be taken, including verifying that the constraint has been
correctly identified (restart at Step One).

This step also includes a caution…beware of inertia. Remain vigilant and ensure that
improvement is ongoing and continuous. The Five Focusing Steps are kind of like “Whac-A-
Mole”…pound one constraint down and then move right on to the next!

I NT E GRAT I NG W IT H L E A N

Contrasting Theory of Constraints and Lean Manufacturing

The Theory of Constraints and Lean Manufacturing are both systematic methods for
improving manufacturing effectiveness. However, they have very different approaches:

 The Theory of Constraints focuses on identifying and removing constraints that limit
throughput. Therefore, successful application tends to increase manufacturing capacity.
 Lean Manufacturing focuses on eliminating waste from the manufacturing process. Therefore,
successful application tends to reduce manufacturing costs.

Both methodologies have a strong customer focus and are capable of transforming
companies to be faster, stronger, and more agile. Nonetheless, there are significant differences, as
highlighted in the following table.

What? Theory of Constraints Lean Manufacturing

Objective Increase throughput. Eliminate waste.

Focus Singular focus on the constraint (until it is Broad focus on the elimination of
no longer the constraint). waste from the manufacturing
process.

Result Increased manufacturing capacity. Reduced manufacturing cost.

Inventory Maintain sufficient inventory to maximize Eliminate virtually all inventory.

throughput at the constraint.

Line Balancing Create imbalance to maximize throughput Create balance to eliminate waste
at the constraint. (excess capacity).

Pacing Constraint sets the pace (Drum-Buffer- Customer sets the pace (Takt Time).
Rope).
 From the perspective of the Theory of Constraints, it is more practical and less expensive
to maintain a degree of excess capacity for non-constraints (i.e. an intentionally unbalanced line)
than to try to eliminate all sources of variation (which is necessary to efficiently operate a
balanced line). Eliminating variation is still desirable in TOC; it is simply given less attention
than improving throughput.

Combining Theory of Constraints and Lean Manufacturing

One of the most powerful aspects of the Theory of Constraints is its laser-like focus on
improving the constraint. While Lean Manufacturing can be focused, more typically it is
implemented as a broad-spectrum tool.

In the real world, there is always a need to compromise, since all companies have finite
resources. Not every aspect of every process is truly worth optimizing, and not all waste is truly
worth eliminating. In this light, the Theory of Constraints can serve as a highly effective
mechanism for prioritizing improvement projects, while Lean Manufacturing can provide a rich
toolbox of improvement techniques. The result – manufacturing effectiveness is significantly
increased by eliminating waste from the parts of the system that are the largest constraints on
opportunity and profitability.

While Lean Manufacturing tools and techniques are primarily applied to the constraint,
they can also be applied to equipment that is subordinated to the constraint (e.g. to equipment that
starves or blocks the constraint; to post-constraint equipment that causes quality losses).

The remainder of this section describes how to apply a range of Lean Manufacturing tools and
techniques to the Five Focusing Steps.

The Five Focusing Steps of the Theory of Constraints can utilize

established lean manufacturing tools as shown in the above diagram.
Applying Lean Tools to “Identify the Constraint”
 Lean Manufacturing provides an excellent tool for visually mapping the flow of
production (Value Stream Mapping) as well as a philosophy that promotes spending time on the
plant floor (Gemba).

Lean Tool Description

Value Stream Value Stream Mapping

Mapping
 Provides a foundation from which to work when identifying the constraint.
For example, the cycle time of each stage can be marked on the map.
 Engages teams and useful for problem solving exercises.
 Helpful for documenting complex processes.

(VSM) visually maps the flow of production (current and future states) using a
defined set of symbols and techniques.

Gemba Gemba

 Walking the plant floor, observing production, and interacting with

employees can be a very effective way to gather information that helps
identify the constraint.

encourages leaving the office to spend time on the plant floor. This promotes a deep
and thorough understanding of real-world manufacturing issues – by first-hand
observation and by talking with plant floor employees.

Applying Lean Tools to “Exploit the Constraint”

Lean Manufacturing strongly supports the idea of making the most of what you have,
which is also the underlying theme for exploiting the constraint. For example, lean teaches to
organize the work area (5S), to motivate and empower employees (Visual Factory/Andon), to
capture best practices (Standardized Work), and to brainstorm incremental ideas for improvement
(Kaizen).

Lean Tool Description

5S 5S

 Creates a foundation for better performance at the constraint.

 Enables faster identification of emerging issues at the constraint.
Lean Tool Description

 Results in increased motivation and pride (from the improved work

environment).

is a program for eliminating the waste that results from a poorly organized work
area. It consists of five elements: Sort (eliminate that which is not needed), Set In
Order (organize the remaining items), Shine (clean and inspect the area),
Standardize (create standards for 5S), and Sustain (consistently apply the standards).

Visual Factory / Visual Factory

Andon
 Displays constraint production metrics in real time – a powerful motivator.
 Reduces reaction time to stoppages by instantly alerting operators to
intervene.
 Empowers operators to call immediate attention to problems at the
constraint.
 Increases focus by using visuals to reinforce the importance of the constraint.

is a strategy for conveying information through easily seen plant floor visuals.
Andons are visual displays that indicate production status and enable operators to
bring immediate attention to problems – so they can be instantly addressed.

Standardized Standardized Work

Work
 Improves throughput by consistently applying best practices at the constraint.
 Reduces variation by applying standardized procedures at the constraint.
 Ensures that all operators setup and run the constraint in a repeatable way.

captures best practices in work area documents that are consistently applied by all
operators and that are kept up-to-date with the current best practices.

Kaizen Kaizen

 Provides a proven mechanism for generating ideas on how to exploit the

constraint.
 Identifies “quick win” opportunities for improving throughput of the
constraint.
 Engages operators to work as a team and to think critically about their work.

provides a framework for employees to work in small groups that suggest and
implement incremental improvements for the manufacturing process. It combines
the collective talents of a company to create an engine for continuous improvement.
Applying Lean Tools to “Subordinate to the Constraint”

Lean Manufacturing techniques for regulating flow (Kanban) and synchronizing

automated lines (Line Control) can be applied towards subordinating and synchronizing to the
constraint.

Lean Tool Description

Kanban Kanban

 Offers simple visual techniques for controlling the flow of materials.

 Synchronizes material usage at the constraint with material usage in the upstream
process by controlling when new materials are released into the process.

is a method for regulating the flow of materials, which provides for automatic
replenishment through signal cards that indicate when more materials are needed.

Line Line Control

Control
 Provides an effective alternative to traditional Drum-Buffer-Rope for FMCG lines.
 Optimizes constraint and non-constraint running speeds to maximize throughput
and reduce the frequency of minor stops.
 Reduces startup delays on the constraint by synchronizing equipment startup.

is a sophisticated technique used with synchronous automated lines, such as FMCG (Fast
Moving Consumer Goods) lines, which slaves non-constraint equipment to the constraint
in such a way as to increase overall system throughput.

Applying Lean Tools to “Elevate the Constraint”

Lean Manufacturing techniques for proactively maintaining equipment (TPM),

dramatically reducing changeover times (SMED), building defect detection and prevention into
production processes (Poka-Yoke), and partially automating equipment (Jidoka) all have direct
application when elevating the constraint. TPM and SMED can also be viewed as exploitation
techniques (maximizing throughput using currently available resources); however, they are fairly
complex and are likely to benefit from working with outside experts.
Lean
Tool Description

TPM TPM (Total Productive Maintenance)

 Reduces the frequency of constraint breakdowns and minor stops.

 Provides operators with a stronger feeling of “ownership” for their equipment.
 Enables most maintenance to be planned and scheduled for non-production time.
 Targets quality issues by finding and removing the root causes of defects.

offers a holistic approach to maintenance that focuses on proactive and preventative

maintenance to maximize the operational time of the constraint (increasing up time, reducing
cycle times, and eliminating defects).

SMED SMED (Single-Minute Exchange of Dies)

 Increases usable production time at the constraint.

 Enables smaller lot sizes, resulting in improved responsiveness to customer demand.
 Enables smoother startups, since a simplified and standardized changeover process
improves quality and consistency.

is a method for dramatically reducing changeover time at the constraint. As many steps as
possible are converted to external (performed while the process is running) and remaining
steps are streamlined (e.g. bolts and manual adjustments are eliminated).

Poka- Poka-Yoke
Yoke
 Reduces the number of defects (which is also very important post-constraint).
 Enables the operator to spend more time on Autonomous Maintenance.

(also referred to as “mistake proofing”) designs defect detection and prevention into
equipment with the goal of achieving zero defects.

Jidoka Jidoka

 In some cases, the constraint cannot be broken without significant capital investment.
Jidoka can provide valuable guidance on equipment design and upgrades.

means “intelligent automation” or “automation with a human touch”. It recognizes that

partial automation is significantly less expensive than full automation. Jidoka also
emphasizes automatic stoppage of equipment when defects are detected.
 Business Process Reengineering
Business process reengineering is the act of recreating a core business process with the
goal of improving product output, quality, or reducing costs. Typically, it involves the analysis
of company workflows, finding processes that are sub-par or inefficient, and figuring out ways to
get rid of them or change them.
Business process reengineering became popular in the business world in the 1990s,
inspired by an article called Reengineering Work: Don’t Automate, Obliterate which was
published in the Harvard Business review by Michael Hammer.His position was that too many
businesses were using new technologies to automate fundamentally ineffective processes, as
opposed to creating something different, something that is built on new technologies.
Think, using technology to “upgrade” a horse with lighter horseshoes which make them
faster, as opposed to just building a car.In the decades since, BPR has continued to be used by
businesses as an alternative to business process management (automating or reusing existing
processes), which has largely superseded it in popularity.And with the pace of technological
change faster than ever before, BPR is a lot more relevant than ever before.

Business Process Reengineering Methodologies

Today’s organizations are confronted with difficult operation conditions and with
continuously increasing competition. Reengineering and/or continuous improvement of their
business processes seems to be unavoidable in order to survive in a competitive and continuously
changing environment.
In its initial form, BPR aims at fulfilling radical change requirements by redefining the
mission and the vision of the organisation under study, the products or the services it provides, the
market it aims at and its organisational structures. Hammer is the proponent of this form of BPR.
He argues that reengineering should "strive to break away from the old rules about how to
organise and conduct business. It involves recognising and rejecting some of them and then
finding imaginative new ways to accomplish work. From redesigned processes, new rules will
emerge that fit the times". For Hammer, the role of IT in a BPR project is to challenge the
assumptions inherent in the work processes that have existed since long before the advent of
modern computer and communications technology. He also suggests the following seven
principles in order to embark a successful reengineering effort:
(1) Organize around outcomes, not tasks, (2) Have those who use the output of the process
perform the process, (3) Subsume information-processing work into the real work that produces
the information, (4) Treat geographically dispersed resources as though they were centralized, (5)
Link parallel activities instead of integrating their results, (6) Put the decision point where the
work is performed, and build control into the process, (7) Capture information once and at the
source.
Despite the fact that many researchers may disagree with Hammer's radical approach to
reengineering, the above principles seem to apply in general as they reflect information age
requirements, that is flatter, customer centered and competitive organizations.
 Davenport and Short suggest a more modest approach to BPR. They consider
reengineering as a combination of the radical change approach and the discipline of continuous
process improvement. According to them business process reengineering is "the analysis and
design of workflows and processes within and between organisations".

They recommend a structured and controlled approach to reengineering, which involves

the selection of the most critical and important processes of the organisation, the analysis of their
current performance and their redesign. On the contrary BPR refers to discrete initiatives that are
intended to achieve radically redesigned and improved work processes in a bounded time frame
[Yogesh Malhotra].
Based on the above major perspectives, many researchers have introduced several
methodologies to support a BPR effort. An organization has to choose between these approaches
to support a BPR project, but none of them is a panacea. The challenge in structuring a project for
improving the performance of business processes, is to select the approach that is best suited to the
situation in hand, taking into account organization objectives, capabilities and economic or
competitive requirements.
The majority of BPR methodologies share common features and steps. In the following
sections we describe a representative sample of these methodologies. In the end we describe the
differences of these methodologies and the value and the importance of each special step in a BPR
effort. Moreover, the main reasons behind the failure of BPR projects are discussed and a list of
factors that should be considered in order a reengineering effort to be successful is provided.
Finally, we discuss how BPR seems to be applied in future.

The Hammer / Champy methodology

Hammer and Champy define BPR as the “fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in critical, contemporary measures of
performance, such as cost, quality, service and speed”. In fact a BPR effort changes practically
everything in the organization: people, jobs, managers and values, because these aspects are linked
together. Hammer and Champy call these aspects the four points of the business system diamond,
which is depicted in Figure 1.

Business Processes

Jobs and
Values and Beliefs
Structures

Management and
Measurement Systems
Figure 1. The business system diamond
 According to them IT plays a crucial role in BPR, especially when it is used to challenge
the assumptions inherent in the work processes that have existed since long before the advent of
modern computer and communication technology. Inductive thinking is needed in order to
recognize the power inherent in modern IT and to visualize its application. This means that instead
of first defining a problem and then seeking and evaluating different solutions to it, it is more
efficient to first recognize a powerful solution and then seek the problems it might solve. Since,
reengineering is about innovation and not automation, one of its most difficult parts is recognizing
the “new” capabilities of technologies.

Hammer and Champy consider poor management and unclear objectives as the main
problems to BPR success, but initially they failed to give adequate consideration to the human
factor. Only recently they acknowledge people’s resistance as a major obstacle to a successful
BPR undertaking.
Hammer and Champy suggested a methodology for BPR, which was refined by Champer’s
Consultant Company. The six phases of the methodology are next presented:
1. Introduction into Business Reengineering
The first step in reengineering is to prepare and communicate the “case for action” and the
“vision statement”. The “case for action” is a description of the organization’s business problem
and current situation; it presents justification for the need for change. The “vision statement”
describes how the organization is going to operate and outlines the kind of results it must achieve.
This qualitative and quantitative statement can be used during a BPR effort, as a reminder of
reengineering objectives, as a metric for measuring the progress of the project, and as a prod to
keep reengineering action going.
The articulation and the communication of the case for action and the vision statement is
the leader’s (CEO) responsibility, who should inform firstly the senior management team and
secondly the rest of the organization.

2. Identification of Business Processes

During this phase, the most important business processes are identified and are described
from a global perspective using a set of process maps. Process maps give a picture of the work
flows through the company. They show high-level processes, which can be decomposed into sub-
processes on separate sub-process maps. Process maps are also used as a means of communication
to help people discuss reengineering. The output of this phase is a number of process maps
reflecting how these high-level processes interact within the company and in relation to the outside
world.

3. Selection of Business Processes

It is unrealistic to reengineer all the high level processes of an organization at the same
time. Therefore, it has to be decided which are the processes to be redesigned. This is a very
important part of a BPR effort. Candidate for reengineering are the most problematic processes
those with great impact to customers or processes with more chances to be successfully
reengineered, processes that contribute to organization’s objectives and so on.
 According to an organization’s strategic objectives more criteria could be defined for
selecting processes for redesign, such as whether a process contributes to the organization’s
strategic direction, has an impact on customer’s satisfaction e.t.c.

4. Understanding of Selected Business Processes

Before proceeding to redesign, the reengineering team needs to gain a better understanding
of the existing selected processes, concerning what they do, how well or how poorly they perform,
and the critical issues that govern their performance. Detailed analysis and documentation of
current processes is not within the scope of this phase. The objective is the provision of a high
level view of the process under consideration, in order the team members to have the intuition and
insight required to create a totally new and superior design.

5. Redesign of the Selected Business Processes

This is the most creative phase of the methodology, because new rules and new ways of
work should be invented. Imagination and inductive thinking should characterize this phase.
Redesigning a process is not algorithmic or routine and therefore Hammer and Champy suggest
three kinds of techniques that can help reengineering teams to generate new ideas:
As redesign proceeds teams can consider these techniques again to stimulate additional
thought.

6. Implementation of Redesigned Business Processes

The last phase covers the implementation phase of the BPR project. Hammer/Champy do
not talk about implementation as much about project planning. They believe that the success of the
implementation depends on whether the five preliminary phases have been properly performed.

Davenport’s and Short’s methodology

Davenport and Short position IT at the heart of BPR. They recognize the existence of a
recursive relationship between IT capabilities and BPR, meaning that IT should be considered in
terms of how it supports new or redesigned business processes, and recursively business processes
and process improvement should be considered in terms of the capabilities IT can provide. Despite
their emphasis on innovation and technology, they recognize the importance of organization and
human resource issues as to change management, and suggest the use of traditional management
approaches like planning, directing decision making and communicating.
Believing that BPR should be integrated with approaches like Continuous Process
Improvement (CPI) [Reference is needed], Davenport and Short suggest that the redesign effort of
an organization involve five major steps.
The first three steps are very similar to Hammer’s methodology. Things differentiate after the
fourth step.
1. Develop Business Vision and Process Objectives
During this step the objectives and the business vision of an organization are defined. A
business vision implies specific objectives for process redesign, such as: Cost Reduction, Time
reduction, Output Quality, the Quality of Worklife and the Quality of Learning.
The objectives are prioritized and stretch targets are set. A redesign effort does not aim at
improving processes’ performance, so that they contribute to the fulfilment of the vision and the
objectives of the organization.

2. Identify Processes to Be Redesigned

The most important processes are identified and prioritized according to their redesign
potential. Key business processes are identified either by identification and prioritization of all
processes (exhaustive approach) or by identification of important processes or processes in conflict
with conflict with the business vision and process objectives (high impact approach).

3. Understand and Measure Existing Processes

The functionality of selected process is understood here and their performance is measured
against the specific reengineering objectives. It is important that designers think in an innovative
way and are not restricted or influenced by the analysis of current situation.

4. Identify IT levers
IT is a powerful tool not only for supporting processes but also for creating new process
design options; therefore, it has its own step in process redesign. The authors suggest eight ways to
think about IT capabilities and their organizational impacts, which are summarized in Table 1.
Table 1. IT capabilities and their organisational impact
Capability Organisational Impact/Benefit

Transactional IT can transform unstructured processes into routinized transactions

Geographical IT can transfer information with rapidity and ease across large distances, making processes independent of
geography

Automational IT can replace or reduce human labour in a process

Analytical IT can bring complex analytical methods to bear on a process

Informational IT can bring vast amounts or detailed information into a process

Sequential IT can enable changes in the sequence of tasks in a process, often allowing multiple tasks to be worked on
simultaneously

Knowledge management IT allows the capture and dissemination of knowledge and expertise to improve the process

Tracking IT allows the detailed tracking of task status, inputs, and outputs

Disintermediation IT can be used to connect two parties within a process that would otherwise communicate through an intermediary
(internal or external)
5. Design and Build a Prototype of the Process
The final step in a redesign effort is the design of the new process. The actual design of the
new process should be viewed as a prototype and successive iterations should be expected. Three
key factors and tactics are considered in process design and prototype:
 using IT as a Design Tool
 understanding generic design criteria
 creating organizational prototypes
Process Analysis and Design Method (PADM)
Process analysis and design methodology (PADM) was introduced by the Informatics
Process Group (IPG) at Manchester University as a framework of tools and techniques, which can
be used in a BPR effort according to particular circumstances.
PADM is an offspring of Process Modelling Cookbook, a collection of techniques, which
can be used for business process (re)engineering. The Process Modelling Cookbook comprises two
phases:
 Representation, which is an activity for developing knowledge and understanding of a process,
 Refinement, during which the knowledge gained during the representation, is used in order to
consider change and to respond to problems, inconsistencies, concerns e.t.c.
An important feature of this Cookbook is that it provides a framework for continuous
process improvement. PADM inherits this feature: its activities may iterate for continuous process
improvement.
Several techniques and philosophies influence the methodology, mainly the Soft Systems
Methodology (SSM) and Sociotechnical Systems Design(SSD). SSM was developed at Lancaster
University and is a technique for structuring complex unstructured problems [M29]. It is used in
many areas and particularly in the information system development for exploring and defining
user requirements. SSD is based on the idea that organisations are sociotechnical systems meaning
that they comprised a technical and a social subsystem. Organisation’s performance depends on
both these systems and their interrelation. The methodology has to do with the joint design of the
technical subsystem and the social subsystem in such a way that they support each other. The aim
of the design is to optimise both for efficiency and job satisfaction and motivation.
At the heart of PADM there is an effort to manage the relationship between the support
technology and the organization. This comes from the fact that the method recognizes a recursive
relationship between technology and processes. The introduction of new technology in an
organization affects its processes, and in order to change a process some alterations to the support
technology may be required.
 Figure 2 shows the general structure of PADM. There are four major phases and the BPR
effort takes place within a strategic business context. As we can notice the methodology does not
address the issue of process selection in its current form. It focuses mainly on analysis and design
once a process has been identified and selected for improvement. The four phases are not
performed in strict sequential order. They form a complex activity in which the individual stages
reciprocally interact.

Business
Strategy

Selected

process

Process Baseline Process Target

Definition Process Evaluation Process
Capture Design

Figure 2. The PADM framework

1. Process Definition
A clear definition of the objectives, the boundaries and interfaces of the selected processes
is accomplished. Since defining objectives is a very difficult task, PADM recommends the use of
SSM in order to assist this task. Process’ main inputs and outputs, organization’s departments
involved in process’ execution, customers supported by this process and the suppliers that provide
input to it are also defined. Process categorization also takes place here. It aims at identifying
common characteristics between different processes leading to reuse opportunities.
Process definition is the basis for process evaluation.

2. Baseline Process Capture and Representation

A model of the current process is developed here, mainly for facilitating understanding,
isolating issues and identifying change opportunities.
PADM recommends the use of several different modelling techniques including:
 Person – centered process charts. This is a simple form used to codify job descriptions in terms
of task, tools, resources and products. In fact a person centred process chart provides a
‘structured notebook’ where the modeler records details from conversations with process
participants. It is mainly concerned with four questions:
1. What activities does the person perform?
2. What objects do these activities involve?
3. How do activities map to roles?
4. How can the objects be classified?
 IDEF0 models for high level process modelling.
 RADs for more detailed descriptions of a process.
 Object flow diagrams that are used to track the passage of objects through a process. Objects
here are defined as “anything that a generic user manipulates, uses or handles in the course of
work”. They are distinguished between resources that are used directly by the process, and
tools that facilitate the process
 Activity diagrams that are built up from observed activities. They capture the definition of the
activities, their ordering including iteration and concurrence, the process logic in terms of
conditions for ordering activities, interactions between persons and activity attributes, in terms
of time required, duration and resources used. It is not necessary all this information to be
represented in one diagram, since an activity diagram is built up according to need.

3. Process Evaluation
The baseline process is analyzed and assessed. Deficiencies both in the technical and the social
subsystem of the organization are identified. Some indicators of social problems are low job
satisfaction and poor motivation. In the technical system the methodology recognizes two types of
weakness: ineffectiveness (customer requirements are not met) and inefficiency (wasteful use of
resources).

Identifying and measuring performance indicators is a key issue to process evaluation.

According to the methodology what is measured in a particular process depends on what is
important in the particular study. The assessment may be based on a number of process properties
such as:
Accuracy: "the degree to which the process output matches the intended result". This measure is
black-box meaning that the process is assessed as a whole.
Fidelity: "the faithfulness with which a defined process is followed". This is a white-box measure
meaning that it measures component parts of the process.
Precision: "the detail in which the process is prescribed". This measure is applied to a prescribed
process.
Scalability: " the size of the workload that the process can accommodate".
Metrics and simulation techniques are not used.

4. Target Process Design

This phase involves the design of the new process. Depending on particular circumstances
either an approach of incremental improvement or an approach of radical change may be adopted.
In both cases a model is developed. This model will be implemented in place of the current
process. The methodology recommends the use of RADs for the development of the model.
 The Target Process Design phase takes also into consideration both technical and social
systems. Technical improvement aims at reducing complexity, minimizing non-value adding
activities and eliminating or improving the control of variances. PADM gives emphasis to the
identification of opportunities for process improvement by exploiting I.T. support. The social
perspective of process improvement involves changes to jobs and the social structure in order to
increase motivation, to increase job satisfaction by giving people the skills, information and
authority to take greater responsibility for their work.
PADM aims at being a flexible, broad and adaptable methodological framework, in order to be
used across a wide spectrum of projects ranging from incremental process improvement activities
to broad-scale innovation projects involving top-down organizational change. The framework is
considered to operate in a strategic business context, meaning that it does not involve either a
phase of creating a business vision or a phase of learning how other organizations’s similar
processes are performed. Moreover, it does not contain a process selection activity. Main emphasis
is given to process modelling by trying to select the appropriate modelling notation according to
its role in BPR, the type of information it provides and the process perspective that it can provide.

Object-oriented BPR
Today object-oriented technology is widely and successfully used for the development of
software systems. Currently many attempts are being made to use object-oriented technology for
modelling organizations and their processes. A good argument for using object orientation to
model organizations is that it models the company in a way that is very close to reality promoting
in this way comprehensibility and understanding. Moreover, if the same technique is used to
model a business and the supporting information system the transition between the two activities
will be easy and distinct. Giving emphasis to business, Jacobson defines an object as an
occurrence containing information and behaviour that is meaningful to the company and has to be
described in its environment. Examples of such objects are customer, invoice, etc. The object’s
behaviour and information can be used by other objects, too. Work tasks in an organization can
also be modeled as objects.

Recognizing object orientation as an excellent way to clarify the inner workings of a

company – its processes, products, services, resources – and how those things depend on each
other, Jacobson et al give their methodology for business process re-engineering which is called
object-oriented business engineering and is based on use cases.
Reengineering work is performed within the framework for business development, and
consists mainly of two steps: reverse-engineering the existing organization, where an abstract
model of the business and the process under study are constructed and forward-engineering the
new company, where the new process is designed.
Figure 3 illustrates the major phases of Jacobson approach to BPR. The arrows indicate
how information flows from one phase to the other and to the environment.
 Business Development

Reversing the
existing business

Envisioning

Engineering the Installing the new

new business business

Reengineering The reengineered

Directive Corporation

Figure 3. Jacobson methodology to BPR

According to Jacobson, a reengineering effort starts in response to a reengineering
directive, which describes in an abstract way current problems, the need for change and the
expected results and which then triggers an envisioning activity that produces a vision of the new
organization in terms of an objective specification. Such a specification describes new or radically
changed business processes and their differences from current ones. Measurable properties and
goals for each process, like cost, quality, life cycle, lead time and customer satisfaction, as well as
technology to support the processes are defined. A set of future scenarios are given in an effort to
predict the effect of changes. A list of risks critical success factors are also given.
However, a vision can not be produced if the organization's strategy is not known and the
existing business has not been understood. Moreover, customer demands and needs should be
captured and benchmarking can help in gaining experience from other successful organizations.
This is accomplished during the reversing the existing business activity (also called reverse
engineering phase), which is triggered by the envisioning activity. During reverse engineering,
models of existing processes are constructed and evaluated using measurable data. More
specifically, two consistent organizational views are described:
 the outside view which describes the company and its environment in terms of use cases and
actors involved and
 the inside view which describes describes the internal functional and hierarchical structure as
well as the processes and the resources used.
Thus, during reverse engineering two are the main activities: “use case modeling” and
“object modeling” which produce respectively the aforementioned outside and inside views. See
Figure 4.
 Reverse Engineering

Use Case Object

Modeling Modeling

Model of the
existing business

Figure 4. The activities of the Reversing the existing business phase

During “use case modeling” a process model of the existing business is produced and
described in terms of actors and use cases. Actors can be customers, suppliers, partners or other
parts of the organization, etc. Use case models describe complete courses of events with a
measurable value for the customer. Use cases are evaluated against certain metrics. Business
processes that are the most critical for reengineering are identified and given a priority.
During “object modeling” the organization’s subsystems (functional units) are identified
and modeled in a leveled way. Use cases are described again here but now in terms of
participating subsystems. Objects carrying out the activities described in each use case are
identified and their interactions are modeled in a high level way. Existing use cases are measured
to obtain metrics values to be compared with corresponding metrics from the use cases to be
designed for the new business. Problems and limitations are identified and existing IT support and
knowledge are identified. Thus, the result is an evaluated object model of the existing business.
Use-case modeling and object modeling are dependent on each other. The work starts with
the use-case model and continues to object modeling when a stable use case model has been
reached, but it is necessary to work iteratively between the two models to obtain a complete,
realistic, comprehensible, informative and evaluated model of the current business. This model is
then used in the as the basis in the next phase which is the ‘engineering the new business’ also
called forward engineering.
The goal of forward engineering is to produce a model for the new organization. This is
achieved by a number of activities which are usually performed in parallel and produce:
 an outside view of the new organization, which describes new or redesigned processes,
focusing on their interfaces to the environment. The outside view of the process is developed
with the use of the use-case model.
 inside views of the new organization which are object-oriented models that have their own
purpose. Each process may be modeled according to the work tasks it includes and the way
they are related, or the products or sub-products it affects. These object-oriented models are
rather abstract and are also called ideal models since they describe a more ideal model of the
organization.
 a real model which contains the ideal models adapted to the restrictions found in the business
and captures the necessary object interactions for the realization of the use cases.
 IT support required for the processes in the new business.
The proposed new models are simulated and tested before their actual implementation. Thus,
the result is an evaluated and simulated model of the proposed organization. Figure 5 depicts the
various activities performed during the forward engineering phase.

Build an Build a
ideal real
model model
Build a
use case Verify
model the new
business
Objective The reengineered
Specification Develop an information organization
system

Figure 5. The activities of the Engineering the new business phase

The last phase is the implementation of the proposed changes during which the new (or
redesigned) business processes are introduced into the organization. Existing processes need to run
until the complete installation of new ones without disturbing the environment in which they both
operate.

1. BPR Methodology Comparison Framework

Most BPR methodologies share common phases and features. The above four popular BPR
methodologies described: Hammer/Champy methodology, Davenport’s methodology, Process
Analysis and Design Method (PADM), and Jacobson’s methodology, is a representative set of
methodologies that share common phases and features, but also differ in the way they approach
reengineering. Their main differences are in
 whether or not they recommend detail modeling and analysis of current situation
 whether they support incremental or radical changes to business processes and
 whether they suggest the study of successful organizations before embarking a BPR project.
 Following, we present a methodology comparison framework, which comprises five major
phases of a BPR project:
1. Learning process phase
2. Create a business vision
3. Modeling and analyzing current processes
4. Modeling and analyzing to be processes
5. Transition to a continuous process improvement effort
The objective of each phase, its value and the potential risks it entails, as well as well
known techniques used to perform each phase are described. Subsequently, each of the above-
described methodologies is placed within this comparison framework and some conclusions are
discussed.
1. Learning process phase
Some BPR methodologies include a phase during which the reengineering team collects
information about customer needs, capabilities of competitors, the way successful organizations
operate, and technology capabilities. This is in fact a learning process through which the BPR
team can estimate the organization’s position in the market, how customers will be more satisfied,
learn how successful competitor and non-competitor organizations operate. Benchmarking is a
technique which can be very useful during this phase.

American Productivity and Quality center defines benchmarking as “the process of

identifying, understanding, and adapting outstanding practices and processes from organizations
anywhere in the world to help your organization improve its performance”.
Sometimes benchmarking is considered as the process of measuring best performance but
benchmarking is actually the process of learning lessons about how best performance is
accomplished. A benchmarking project may either be part of a reengineering or a continuous
improvement project or stand-alone. In both cases it is focused on identifying, studying, analyzing
and adapting best practices and implementing the results. A best practice is in general a method
that can be judged to be superior to other methods. For a particular organization a best practice is
finally determined according to the particular circumstances, its human and financial resources, IT
infrastructure etc. After a best practice is defined, the BPR team is based on it in order to evaluate
existing work processes and subsequently design and evaluate new ones. Jacobson’s methodology
incorporates a learning process step. Hammer and Champy methodology considers that observing
customers and learning about their expectations is an essential part for defining business vision,
while benchmarking is useful as far as it does not prevent innovative thinking.
2. Create a business vision
Creating a vision is one of the most important tasks in a BPR effort, since it gives the
effort’s boundaries and a direction to go on. It is a difficult task because it should give as an output
a clear statement of organization’s future state. In order to create effective visions, a learning
process prior to creating a vision step is needed. Learning about business, organization’s
customers needs and expectations, organizations’ associates and best practices of competitors and
non-competitors, help in creating a realistic vision without underestimating the opportunities
given. Lack of a creating vision step may lead to lack of orientation during a BPR effort and
moreover in difficulties in designing new processes.
Hammer / Champy methodology as well as Davenport and Jacobson’s methodologies
incorporate the phase of creation of business vision. Although an envisioning activity is not
formally part of PADM, the methodology takes place in a strategic business context meaning.

3. Modelling and analyzing current processes

There are contradictory aspects about modelling and analyzing current processes. In favour
of it are researchers who believe that understanding and analyzing current business processes is
fundamental for a successful BPR effort. Against it are researchers who stress that as-is modelling
is a time consuming step, which prevent creative thinking and going beyond old ways of doing
business. If continuous improvement is the case then detail as-is modelling can help in identifying
problems, bottlenecks and opportunities of small changes that will improve performance. During a
BPR effort though, as – is modelling should not be detailed. It should rather help a BPR team to
understand current process and not analyzing it. Hammer and Champy methodology incorporates a
phase of understanding current processes. Detail modelling and analysis of the current situation is
not in the scope of this phase. The rest of the methodologies described in this paper incorporate as-
is modelling and analysis.

4. Modelling and analyzing to be processes

This phase is supported by all the above mentioned methodologies. In fact it is a part of all
BPR methodologies. In order to describe and communicate the future state of a process, the “to-
be” process is visualized. In most cases there are more than one re-design options. These options
are evaluated against expected benefits and the strategic objectives of the organization.

The best of them is selected and is further analyzed to identify neglected problems.
Simulation analysis can be very beneficial in this stage, because it provides a way to simulate the
operation of the future process and identify its strength and potential problems.
5. Transition to a continuous process improvement effort
A BPR methodology that concludes to a continuous improvement model is very strong
because it is positioned within a process management system that enables the investigation,
monitoring and refinement of organization processes. If this is the case then process improvement
becomes an every day task and both radical redesign and continuous process improvement
becomes part of processes’ lifecycle.
The PADM supports the idea of process management and in fact is positioned within such
a framework.
Table 2. Methodology Comparison
Methodology Learning Create a Model and Model and Transition to
Process Business Analyse Analyse “to- CPI
Phase Vision Current be” Process
Process
Hammer/Champy 4 4  4 

Davenport/Short  4 4 4 

PADM   4 4 4

Jacobson 4 4 4 4 

Despite BPR’s popularity during the last decade that has peaked in 1994 [Davenport and
Stoddard], today the study of BPR strategies and the suggestion of BPR methodologies should be
placed around the concepts of knowledge management, change management, the learning
organisation and the employee empowerment. In this context BPR should not be considered as a
panacea. BPR is only one of the several process improvement approaches. It is fundamental that
an organisation determines whether it is appropriate to undertake a BPR effort having in mind the
risk and the high rate of failure that comes with it. Generally, small problems can be faced with
less drastic means of achieving improved performance. If the organisation faces serious problems
then a well organised and managed BPR project can bring the radical changes needed to overcome
these problems and gain a competitive advantage.
It seems that in future BPR will be integrated into a broader process management
approach. Most organisations are oriented towards combining reengineering, continuous
improvement, incremental approaches and restructuring techniques [overview] into a more general
approach of change management. In this way, depending on the importance of the problems and
their business vision.
 LYCEUM OF ALABANG
Department of Business Management Education

Sample Papers About:

“Engagement Letters”

In Partial Fulfillment
Of the Requirements for the
Degree of Bachelor of Science in Accountancy

Submitted by:

Estalilla, Angelica G.

Submitted to:

Mrs. Albina E. Balon ,CPA, MBA, FRIAcc

BSA Program Chair