08
Reengineering Work: Don’t Automate, Obliterate
Michael Hammer
Class 3: IT & Internal Organization
Case Summary by: Jonathan Sacks
Main Takeaways
In the age of internet technology, the older methods for boosting performance—process
rationalization and automation—haven’t yielded dramatic improvements that companies needed
to stay ahead. Thus, a new way of thinking is needed. Instead of embedding and automating
outdated processes, old processes should be obliterated and started over. Businesses should be
reengineered: use the power of modern information technology to radically redesign business
processes in order to achieve dramatic improvements in their performance.
More in-depth Summary
Heavy investments in information technology have delivered disappointing results—largely
because companies tend to use technology to mechanize old ways of doing business. They leave
the current processes intact and use computers to simply speed them up. This can increase
efficiency marginally but not enough to make huge gains.
Businesses like Ford Motor Company and Mutual Benefit Life (MBL) have reengineered their
processes.
Ford Motor Company
Ford has reengineered it accounts payable processes. Ford had 500 people in their accounts
payable department and thought by installing new computer systems could cut that down to 400.
Ford was enthusiastic about this until they looked at Mazda who had a total of 5 people. After
reengineering their processes, Ford was able to get their accounts payable department down to
100 people.
Mutual Benefit Life
MBL reengineered its processing of insurance applications. Initially, the applications had to go
through 30 steps and 5 departments. Typical turnarounds were initially 5 to 25 days. MBL swept
away existing job functions and departmental boundaries and created a new position called case
managers. Case managers performed all the tasks associated with the application process. After
the reengineering, the process time took as little as four hours but typically 2 to 5 days.
There are seven principles of reengineering that have already been discovered:
1. Organize around outcomes, not tasks. This principal says to have one person perform
all the steps in a process. Design that person’s job around an objective or outcome instead
of a single task.
2. Have those who use the output of the process perform the process. When the people
closest to the process perform it, there is little need for the overhead associated with
managing it.
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08
Reengineering Work: Don’t Automate, Obliterate
Michael Hammer
Class 3: IT & Internal Organization
Case Summary by: Jonathan Sacks
3. Subsume information-processing work into the real work that produces the
information. This principle suggests moving work from one person or department to
another. Why doesn’t an organization that produces information also process it?
4. Treat geographically dispersed resources as though they were centralized.
Decentralizing a resource gives better service to those who use it, but at the cost of
redundancy, bureaucracy, and missed economies of scale. Companies no longer have to
make such trade-offs. They can use databases, telecommunication networks, and
standardized processing systems to get the benefits of scale and coordination while
maintaining the benefits of flexibility and service.
5. Link parallel activities instead of integrating their results. This principle says to forge
links between parallel functions and to coordinate them while their activities are in
process rather than after they are completed.
6. Put the decision point where the work is performed, and build control into the
process. The principle suggests that the people who do the work should make the
decisions and that the process can have built-in controls.
7. Capture information once and at the source. Today when we collect a piece of
information, we can store it in an on-line database for all who need it.
In conclusion, we must have the boldness to imagine taking 78 days out of an 80 day turnaround
time, cutting 75% of overhead, and eliminating 80% of errors. If managers have the vision,
reengineering will provide a way.
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