Business Process Improvement and Reengineering

The rise of Japanese companies as quality leaders in the 1970s and 1980s led to a revolution in business management. Operational effectiveness was given the spotlight as the number one dimension on which companies could compete. To be competitive in a fast-paced, high-tech, globally-connected world, businesses had to compete on dimensions of speed, quality and cost. This led to the widespread sharing and copying of a number of management tools and techniques: total quality management (TQM), just-in-time (JIT) and lean manufacturing, to name a few.

Implementing a new management tool or technique could be as small as creating quality circles (small work-groups of employees that help identify problems and brainstorm solutions) or could fundamentally change the culture and structure of the organization (such as implementing TQM). When a business goes through a major change, we call this business process reengineering. When a business goes through a minor change, we call this business process improvement.

Business process improvement is often associated with the Japanese philosophy of Kaizen (continuous improvement). The idea behind Kaizen is that every business should have a corporate culture where when an employee sees something wrong, they fix it. Employees must be empowered to do so.

However, any process improvement falls under the category of "business process improvement." When new technologies or input materials make new things possible, and new supply chains or distribution channels open up, businesses will want to take advantage of these new opportunities. To do so, they may have to make changes to the way they currently do business. New opportunities typically come from change, but they may also arise when a business spots an opportunity in the marketplace that may have been previously overlooked.

Business process reengineering is inspired by the need for business process improvement. Sustainable competitive advantage arises when all of a business's processes and resources exist in a system that best meets the needs of the business's customers. Often existing firms try to meet new customers' needs by grafting new products or services on to existing business units and processes. As a result, they end up "straddling" two positions - trying to keep their existing position in the marketplace while at the same time meeting the needs of new customers. These strategies rarely work, since the business that has one set of processes that it uses to best meet the needs of one set of customers has an advantage over a business that must meet different needs using processes that compromise, or trade-off, between the two.

To ensure that the business's process best meet the needs of its customers, it might have to reengineer its processes altogether. Implementing TQM in a business is an example of process reengineering. Changing the organizational structure is another. Implementing an enterprise resource planning (ERP) system is a third. Implementing a business process reengineering project may have large upfront costs, but firms hope that the reengineered system will deliver value that will make it all worth it.