Alternative Selection – Forgotten Productivity Related Challenges to Process Reengineering’s Value Creation

Estimating any initiative’s return on investment is extremely challenging and often suspect. This article addresses the frequently forgotten and unanticipated factors diminishing the return on process reengineering projects.[wcm_restrict plans=”40843, 25542, 25653″]

Companies invest $10,000s, $100,000s, and even $1,000,000s in the transformation of their business processes only to realize all of the cost but far less of the value than originally projected. Such occurrences make executives, managers, and employees question whether or not they can realistically expect to achieve the returns on investment asserted in any such business case.

Understanding why process reengineering initiatives so often fail (assuming proper project conception and execution) begins with an exploration of what they seek to accomplish. Fundamentally, process reengineering seeks to increase productivity, heighten quality, and reduce waste; all of which directly benefit the organization’s bottom line results assuming no other marketplace changes. Focusing on productivity, the goal simply becomes one in which the same quantity of goods and/or services are produced with fewer people or in which a greater quantity of goods and/or services are produced with the same number of people.

In the case where the same quantity of goods and/or services is produced with fewer people, the lack of value realization stems from the company’s retaining employees that are no longer needed. These individuals are often assigned to tasks of much lower value to the organization to avoid the unpleasant necessity of letting them go; eliminating the initiative’s expected bottom line value creation.

The case where additional goods and/or services are produced with the same number of people with less than anticipated value realization is a bit more complex. First, the initiative may have improved the performance of a portion of the value chain that was not the most limiting constraint; thereby resulting in a buildup of additional inventory at the true bottleneck and no greater throughput. This condition results in elevated inventory carrying costs and no or minimal value creation. Second, the marketplace demand for the good or service may not be sufficient to support the higher volume; forcing down prices and resulting in lower margins and a reduced return to the organization.

Realizing the Value of Process Reengineering

Aside from a properly conceived project that is executed well, several key questions should be asked prior to selecting a process transformation initiative. Thorough consideration of these questions will help ensure the value promised by reengineering an organization’s processes is realized.

Generally Applicable Questions

1. Is the organization ready to change how it does business? Are executives, managers, and employees open and capable of accepting the change in how work is done?
2. Are employees trainable? Can they be trained to perform the new and different tasks that will result from the process change?
3. Have the associated costs of change management, communications, and training been included in the initiative’s return on investment calculation?

Goal 1: Increased Productivity While Maintaining Output

1. Can unnecessary positions be eliminated? Are contracts or other mechanisms in place that prevents such downsizing?
2. Does the organization possess mechanisms that have been successfully used in the past to downsize the workforce other than attrition?
3. Has the cost of downsizing the workforce (severance pay, legal fees, potential short-term productivity loss) been included in the initiative’s return on investment calculation?
4. Are executives and managers willing and capable of making the difficult decision of letting an employee(s) go and executing that decision?

Goal 2: Increased Productivity and Local or Overall Output

1. Is the portion of the value chain being improved the most constrained? (If not, the more restrictive upstream and/or downstream bottleneck(s) will inhibit the resulting productivity increase.)
2. If the portion of the value chain being improved is that which is currently the most constrained, what portion of the increased throughput can the upstream and downstream value chain accommodate? Has the return on investment calculation considered only this portion of the throughput increase (appropriate) or the entire increase (inappropriate)?
3. Will the market support in part or whole the increase in the availability of the product or service at acceptable margins?
4. Has the return on investment calculation been determined using the estimated market supported consumption rate at the updated price point?

Final Thought…

The questions posed within this article challenge leaders to consider whether they can reasonably expect to achieve predicted returns on investment for their process reengineering initiatives. As such, these questions deal with the unique circumstance surrounding process transformation projects that often go unconsidered yet negatively impact the project’s outcomes. While proper project conception, execution, and change management will significantly contribute to the final return on investment realized, these are not addressed here as they relate to all initiative undertaken by the organization.

Lastly, we recommend reviewing of these questions when considering an Enterprise Resource Planning (ERP) system implementation. Such systems accelerate process execution regardless of effectiveness. Subsequently, most system integrators seek to transform system supported processes to ensure the client organization benefits by having both leading practice processes and ERP system acceleration.[/wcm_restrict][wcm_nonmember plans=”40843, 25542, 25653″]

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