Without changing the process, IT is useless

We are in an era of "steady productivity", the middle of the so-called "Information Age", which goes far beyond simply installing a new computer to increase productivity. In fact, there are many examples of how a business can struggle more if it misuses or mismanages technology.

Example 1: A manufacturing company installed an ERP system at a cost of $85 million, but it has never been running, and it may be on the shelf forever.

Example 2: A group company employs more than 300 system development consultants to integrate the financial systems of its many acquired companies. The program ran for years and looked more like a full-time job for consultants than implementing a project that would bring real value to the company or client.

Example 3: In many companies, communication technologies (such as e-mail and voicemail) control everyone's behavior. People often rush into things that seem very urgent—like responding to emails instantly—instead of doing things that really matter. Everyone seems to be busier, but it's not clear if they're more productive. Just because you're juggling all kinds of electronic messages doesn't mean people are doing what they're supposed to do.

These cases not only point to the dangers of misuse of technology, but also illustrate the point that while technology can lead to increased productivity, not all companies automatically benefit from it. Like any other capability a business possesses, a business must properly manage information technology.

Process Reengineering

When managed properly, there is no doubt that information technology can make a big difference in a business. Companies such as Dell, Cisco Systems, and Wal-Mart are examples of skilled mastery of technology that not only manages it skillfully, but also recognizes that the process of "work" itself can be changed of.

"How to redesign work", "who does it", "where to do it" are all questions that must be asked and answered when applying new technologies. In the next wave of technology-driven productivity improvements, companies will not only need to apply technology flexibly, but also make substantial work improvements.

Take a look at what has changed since banking became digital. There is such a business, if it is handled manually by the teller, the cost is 10 dollars; if it is handled by the telephone system, the cost is 1 dollar; and if the customer operates it at the ATM machine, the cost is reduced to 10 cents. As more and more customers choose to transact over the Internet, working within banks has also changed. Thus, the real increase in productivity comes from a combination of technology and job improvement.

Information technology was first introduced to most companies in the 1950s as an accounting application. For more than 40 years, it has also mainly played its part in the financial field, and later developed into fields such as R&D, manufacturing, distribution, marketing, sales and customer service, gradually building up their "systems". By the 1970s, each business unit had its own computer application system, and "minicomputers" and distributed computer systems contributed to the technological independence of each department.

The productivity of most departments has increased, but has the productivity of the entire company kept up? This is not clear. In the 1980s, an MIT study called into question the return on corporate IT investments.

The ensuing debate points to two possible reasons for the failure of technology adoption. One, the use of computers is so department-focused that the company as a whole doesn't really connect and become more efficient. Second, information technology is also being used to automate old workflows, and by doing so alone, productivity improvements can only be incremental.

It wasn't until 1993, when my partner Mike Hammer and I got into this debate that we introduced the idea of "process reengineering." We believe that if companies are to significantly improve their business performance, they must fundamentally redesign their work processes, and automating legacy processes will not help.

In many organizations, work is broken up into pieces, handled by various departments, and the work system is too bureaucratic. We believe companies need to focus on core processes - such as customer service, purchasing, order processing. Technology becomes a productivity booster only when combined with job improvement.

The concept of "process reengineering" is taking off. Some companies refer to all corporate restructurings or layoffs as "process reengineering," while more companies are revamping their operational processes, reaping the benefits of increased productivity. Over the past decade, process change, in conjunction with information technology, has led to increased productivity in many businesses.

Anyone who opposes large-scale corporate change argues that "process reengineering" can stop. In fact, the real process reengineering has just begun. While companies may call process change otherwise, information technology—especially the Internet—has made operational methods that were difficult to implement in the early 1990s now feasible. The Internet has made information technology ubiquitous, enabling companies to be closely connected, both internally and externally. It also opens up a treasure trove of information.

At the same time, the commercial pressures for companies to reengineer their processes in the 1990s intensified, and competition among companies intensified. In almost every industry, being a low-cost producer has become a bargaining chip for companies to fight for their lives. As customers learn more and more information, they become more savvy and demanding. Changes in the business environment are continuing to intensify. These factors require more operational change in the company, and I call the next round of change "X-engineering".

Reengineering Across Organizations

The X in "X-engineering" refers to transcending organizational boundaries. We are at a stage where productivity gains now and in the future stem from redesigning the company's processes for dealing with external organizations such as customers, suppliers, partners, and perhaps competitors. Applying cross-organizational thinking to technology-driven process change, you'll discover the potential for improved efficiency and service levels.

For example, in the global logistics industry, 40 cents of every $1 in shipping is spent on "paperwork." The processes that exist across organizations create redundancies, errors, and failures, adding unvalued expenses out of thin air. For example, shipping a container across the Atlantic requires 26 different papers.

Identifying and seizing opportunities for reengineering across organizations is much more difficult than reengineering processes within a company. To make this work successful, three principles need to be grasped: transparency, standardization, and harmonization.

Transparency When a company wants to connect and coordinate with customers and suppliers in new ways, all parties involved must make their operating procedures public -- including revealing the true costs of various tasks and processes. Currently, many companies operate under the principle of opaqueness, on the grounds that there is always something in a company that needs to be "hidden" or "protected".

In fact, most companies have similar processes to their competitors. Some companies are exceptions because they do have unique products and processes that deserve protection. In the long run, a company's sustainable competitive advantage lies in its ability to execute. In an increasingly networked society, execution means deeper collaboration with customers and suppliers, all of which demand greater transparency.

Standardization If the entire industry chooses to standardize procedures, all companies will experience dramatic efficiencies. The financial services industry has achieved standardized operations to some extent. However, it would be even more efficient if all banks were willing to share standardized procedures. For example, while banks' back-office systems are all similar, each large commercial bank insists on keeping their own back-office systems, resulting in billions of dollars in annual overhead.

Reengineering across organizations requires more technical standards than companies are currently willing to accept. Over time, the technological infrastructure of many companies has developed without control. Individuals and departments get the technological facilities they expect in the name of innovation, without much thought for how these systems and procedures will be linked together. Many companies continue to find that these disparate and unconnected technologies hinder communication not only within the organization, but also across the organization. In contrast, standardized technologies are easier to maintain and cost less.

In the process of standardizing technology, companies should avoid sloppy thinking of infrastructure technology infrastructure as "Utility" (Utility). People often use this concept to refer to hardware, operating software, and connecting networks. However, the amount of information stored in these infrastructures is so great that you can't compare it to a cable running through a building; nor can it be managed as an ordinary utility as an asset of incredible value. .

Alignment All companies must understand what a truly aligned process means. A company's buying process is designed at different times and with different goals, unlike a supplier's selling process. This inconsistency creates all kinds of friction and problems, and creates expensive transaction costs. As a result, company-to-company processes or company-to-customer processes need to be rationalized to form an integrated set of processes that can be used by all parties. In the current technology-driven environment, just dealing with issues that arise in the transaction interface will not lead to productivity gains.

For example, Owens and Minor, the largest supplier of medical equipment in the United States, requires customers to disclose more information about their inner workings, such as how medical equipment enters the operating room? Why does the delivery truck make several trips to the hospital in one day? Owens and Minor also discloses its books and logistics costs to the company's clients. Under the leadership of CEO Gil Minor, the company introduced shared procurement and materials management processes. The result of this is that the product price is lower, and the company's profit margin is larger. This is the real harmony.

Offshoring

In addition to process reengineering and cross-organizational reengineering, many companies will adopt or experiment with a third practice within 10 years, namely "offshoring". This practice is increasingly applied, and the places where work is performed will continue to face a wide-ranging reshuffle because of it.

Offshoring does not necessarily involve redesigning the job, but usually means moving the job to a country where it is cheaper to execute and of higher quality. The result of this is lower costs and higher competitiveness for individual companies, but "offshoring" does not follow the traditional productivity-enhancing model, and not every unit of work has a greater output.

Yet the phenomenon of "offshoring" is too important to ignore because it is about how useful information technology can be. In Ireland, insurance claims cannot be completed without information technology; in India, customer service calls cannot be answered; in Singapore, transistor designers cannot design products for Taiwanese manufacturers. Improvements in processes and advances in telecommunications technology have enabled the free and cost-effective flow of information, money, services and products internationally. Information technology has brought the global economy to life.

The question at issue is whether what benefits General Motors (GM) and other companies that move jobs overseas will still benefit their home countries as local jobs dwindle? There is no doubt that these companies will continue to do so in order to be more competitive. And their countries must take steps to protect certain key technologies from loss. For example, if American ship and aircraft manufacturing technologies are lost to China, it will face huge commercial and security risks.

Job losses are either due to increased productivity, offshoring, or both. As the global economic system is currently challenged by this phenomenon, let us revisit the views of British philosopher and economist Adam Smith. Smith believed that technological progress could improve social welfare and that increased productivity would ultimately benefit the public. Likewise, in the journey of technological development, there are always some inevitable things that happen.

In the 20th century, technology companies like Marconi and Edison enthusiastically followed Smith's theories. In the 21st century, Microsoft's Bill Gates, Dell's Michael Dell, and Cisco's Chambers became IT icons. They are all well aware that today's technology has the dual benefit of raising the relevance of human activity to a new level and providing extraordinary access to knowledge. Technological advances in the age of networked intelligence will drive productivity gains again.

Like the claims above, I also believe in the "good" side of technology. Innovation and new technologies, while boosting productivity, will ultimately create more jobs. Over time, new technologies will improve our quality of life, but the speed of this process depends on how wisely we manage technology.

Three lessons from best practices

If a company thinks that buying information technology, it can automatically implement process changes, it will be the biggest disaster of information technology. In order to implement major process changes, they install a lot of software and therefore expect the change to happen automatically. Symptoms of problems arise when management hopes to develop large-scale systems to effect business change, but leaves the job to the information technology department or external consultants.

In this case, the system has been developed before the work has been widely recognized at all levels of the company. Often, organizations don't realize what they really need until near the end of system development. At this point, in order to better fit the organization's future operating mechanism, the original development work was stopped and another system was redesigned. This will waste a lot of time and money.

Lesson #1: Redesign business processes first, then apply technology; at least do both at the same time.

At a recent staff meeting at a large hospital, the head of the nursing department complained that new systems and processes had increased the workload of the department's staff and kept them from focusing on patient care. New computer systems overlaid the old manual operating systems, causing their paperwork to multiply. Due to the shortage of nursing staff, almost no one came to do the work.

This problem often arises when companies don't make enough effort to improve their business and technology, or when poorly designed systems that are designed to help employees become a liability for them.

Lesson 2: When making process changes, you must be drastic, sweeping away the same old things as the autumn wind sweeps the leaves.

Many managers don't think about "process," they think of a company as consisting of customers, strategies, products, services, people, or organizational structures. Of course, these elements are all very important to the company. But in essence, companies are made up of numerous processes. Some processes are about customers and services, while others are about employees. To truly understand a company's productivity, you have to peel back its processes, understand the way it does things, and then think about what way of doing things is more suitable for the company.

If a senior executive disagrees with the role of the process, don't try to change his opinion. Just tell him how far you can increase productivity, and then find some sensible managers in the company to support you.

Lesson 3: Actions aimed at increasing productivity can happen from the bottom up, but they are easier to roll out if they are initiated at the top.

Originally reprinted with permission from the October 2003 issue of Financial Executive Magazine (www.fei.org/mag/). Translated by Yang Tong.