Business process reengineering revises workflows to optimize processes and eliminate non-value-added activities. A comprehensive re-engineering project could result in the complete replacement of an existing process. It is common for such a project to fully integrate the use of the latest information technology, so that automation can take the place of manual labor.
A key underlying concept of business process reengineering (BPR) is that an existing process may have to be completely torn out and replaced. By doing so, an organization can dispense with antiquated notions of how transactions should be dealt with that have more of a basis in tradition than the realities of how a business should compete.
The main problem with BPR is that the type of radical change that is a normal outcome of the process is difficult to impose on an organization. The issue is particularly difficult when a series of BPR changes are required, since they can result in significant downsizing that leads to an employee revolt. A typical outcome is an initial group of BPR changes, after which the effort bogs down and is eventually abandoned. Due to the radical nature of BPR, it works best in an environment where employees understand that a company faces bankruptcy if it cannot overhaul its systems to meet or exceed the performance of competitors.
Examples of successful BPR transformations are:
- Cost accounting. A company painfully compiles the cost of finished goods based on each item included in a production run. A reengineering effort implements the use of backflushing, where costing is automatic, based on the number of units produced and the bill of materials for the items produced.
- Accounts payable. A company only pays suppliers after a difficult three-way matching process, where supplier invoices are compared to receiving documents and purchase orders. A reengineering effort pays suppliers automatically, based on the number of goods produced in which their parts are used. Prices paid are based on the authorizing purchase order. No supplier invoice is needed, or will even be accepted.
- Payroll. A company pays its employees with checks, which requires that checks be sent by overnight mail to outlying employees, and that employees be contacted later if they have not cashed their checks. A reengineering project eliminates checks in favor of payroll cards and ACH electronic payments, thereby eliminating all of the costs associated with checks.