Process Enterprise Discussion

www.hbr.org
What do IBM, Texas
Instruments, Owens Corning,
and Duke Power have in
common? They’re all
redesigning their
organizations around their
core processes—and reaping
enormous benefits as a result.
How Process
Enterprises Really
Work
by Michael Hammer and Steven Stanton
Reprint 99607
What do IBM, Texas Instruments, Owens Corning, and Duke Power
have in common? They’re all redesigning their organizations around
their core processes—and reaping enormous benefits as a result.
How Process
Enterprises Really
Work
COPYRIGHT © 1999 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
by Michael Hammer and Steven Stanton
Although reengineering has in some circles
become a euphemism for mindless downsizing, it has in fact done a world of good. It has
enabled companies to operate faster and more
efficiently and to use information technology
more productively. It has improved the jobs of
employees, giving them more authority and a
clearer view of how their work fits into the operations of the enterprise as a whole. It has rewarded customers with higher-quality products and more responsive service. And it has
paid big dividends to shareholders, reducing
companies’ costs, increasing their revenues,
and boosting their stock values.
Most of all, though, reengineering has
changed the perspective of business leaders.
No longer do executives see their organizations as sets of discrete units with well-defined
boundaries. Instead, they see them as flexible
groupings of intertwined work and information flows that cut horizontally across the business, ending at points of contact with customers. Reengineering, in other words, has allowed
executives to see through the surface structure
harvard business review • november–december 1999
of their organizations to the underlying purpose: the delivery of value to customers in a
way that creates profits for shareholders.
But this new process view of organizations
has not yet been fully realized. Many companies have integrated their core processes, combining related activities and cutting out ones
that don’t add value, but only a few have fundamentally changed the way they manage
their organizations. The power in most companies still resides in vertical units—sometimes
focused on regions, sometimes on products,
sometimes on functions—and those fiefdoms
still jealously guard their turf, their people,
and their resources. The combination of integrated processes and fragmented organizations
has created a form of cognitive dissonance in
many businesses: the horizontal processes pull
people in one direction; the traditional vertical
management systems pull them in another.
Confusion and conflict ensue, undermining
performance.
That’s not the way it has to be. In recent
years, we’ve seen a number of companies
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How Process Enterprises Really Work
make the leap from process redesign to process
management. They have appointed some of
their best managers to be process owners, and
they have given them real authority over work
and budgets. They have shifted the focus of
their measurement systems from unit goals to
process goals, and they have based compensation and advancement directly on process performance. They have changed the way they assign and train employees, emphasizing whole
processes rather than narrow tasks. And they
have made subtle but fundamental changes to
their cultures, stressing teamwork and customers over turf and hierarchy. They have emerged
from all those changes as true process enterprises—companies whose management structures are in harmony, rather than at war, with
their core processes—and they have reaped
enormous benefits as a result.
Creating a Process Enterprise
Michael Hammer is the founder of
Hammer and Company, a management education firm based in Cambridge, Massachusetts. He is the author
of “Reengineering Work: Don’t Automate, Obliterate” (HBR July–August
1990). Steven Stanton is a managing
director at Hammer and Company,
where he specializes in process management.
Texas Instruments’ calculator business is one
such process enterprise. In the early 1990s, the
once-thriving unit was in trouble. Plagued by
long cycle times in new product development,
it was losing sales to more nimble competitors.
Management saw the problem and took action, redesigning the product development
process from scratch. New calculators would
now be developed by teams of people drawn
from engineering, marketing, and other departments who would work together in the
same location. Each team would have full responsibility for its product from conception
through launch, including such highly specialized activities as producing documentation,
creating advertising, and even developing
training materials for teachers suggesting
ways to integrate calculator use into their
classes. Because each team would control
every aspect of its process, all development activities would be performed in a coherent,
streamlined fashion, free of all the old bottlenecks and delays.
That was the theory. But it didn’t work out
that way. The first pilot teams not only failed
to achieve the desired reductions in development times, they barely managed to operate at
all. They were, in effect, sabotaged by the existing organization, which viewed them as interlopers. Functional departments were unwilling
to cede people, space, or responsibility to the
teams. The technical writers and designers
charged with creating documentation got in-
harvard business review • november–december 1999
structions from the product team and then got
conflicting orders from their supervisors in the
marketing department. The corporate training unit refused to relinquish control over the
development of training materials, and the advertising department insisted on continuing to
create product advertising. An effort that had
been intended to create harmony in product
development instead created discord.
The problem was not in the design of the
process. The problem was that power continued to lie in the old functional departments.
The business’s leaders soon realized that it was
impossible to superimpose an integrated process on a fragmented organization.
Rather than give up on the process, they
changed the organization. The development
teams became the primary organizational
units. The mission of the functional departments was redefined; no longer responsible for
the work, they focused on training people in
the skills required by the teams. A new management role—the process owner—was created to oversee product development in the
calculator unit. Budgeting was done by process
instead of by department. Office space was reconfigured to better accommodate and support the process teams. The unit’s senior managers took every opportunity to underscore
the importance of a process perspective
through formal presentations, writings, and informal conversations.
As a result of the changes, the calculator
unit has become much more successful in introducing new products. The time it takes to
launch new products has dropped by as much
as 50%, break-even points have been reduced
by 80%, and the unit has become the market
leader in product categories where it previously had no share whatsoever. The overall return on investment in product development
has more than quadrupled.
IBM went through a similar transformation
a few years later. Seeing that its large corporate
customers were increasingly operating on a
global basis, IBM knew it would have to standardize its operations worldwide. It would
have to institute a set of common processes for
order fulfillment, product development, and so
forth to take the place of the diverse processes
that were then being used in different parts of
the world and in different product groups. But
the change effort immediately ran into an organizational roadblock. IBM’s existing man-
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How Process Enterprises Really Work
In many businesses,
horizontal processes pull
people in one direction;
traditional vertical
management systems
pull them in another.
Confusion and conflict
ensue.
agement systems concentrated power in the
hands of country and product managers, and
they were reluctant to sacrifice their own idiosyncratic ways of working. They simply refused
to allocate the human and technical resources
required to design and roll out standardized
processes.
In response, IBM changed its management
structure. Each process was assigned to a member of its senior-most executive body, the Corporate Executive Committee, making that
member accountable for the process. All members were required to report back regularly to
the Executive Committee on the status of the
design, deployment, and implementation of
the processes, including the benefits realized.
Each process was then assigned an owner,
called a “business process executive” (BPE),
who was given responsibility for designing and
deploying the process, as well as control over
all expenditures for supporting technology.
Each of IBM’s far-flung business units is now
expected to follow the processes designed by
the BPEs. Should there be a disagreement between a unit manager and a process executive
about the workings of a process, the two are
expected to resolve it together. By shifting organizational power away from units and toward processes, IBM has achieved its goal of
standardizing its processes around the world.
The benefits have been dramatic: a 75% reduction in the average time to market for new
products, a sharp upswing in on-time deliveries
and customer satisfaction, and cost savings in
excess of $9 billion.
In 1997, Owens Corning found that its efforts to install an enterprise resource planning
system were floundering. An ERP system is, in
essence, an integrative mechanism, connecting
diverse departments through a shared database and compatible software modules. It is
impossible to get the full benefits of an ERP
system without having integrated processes.
But at Owens Corning, as at IBM and Texas Instruments, there was no one in the organization to speak for processes. Departmental and
regional managers, as a result, were either rejecting the new software or seeking to tailor it
to the narrow needs of their particular units.
In response, the company’s top executives reorganized people into companywide, cross-functional process teams and appointed process
owners to lead them. The new organization
provided the impetus for a successful ERP im-
harvard business review • november–december 1999
plementation, which has in turn led to a 50%
increase in inventory turns, a 20% reduction in
administrative costs, and millions of dollars in
logistics savings.
Creating a process enterprise is an enormously complex undertaking, as Texas Instruments, IBM, and Owens Corning all found out.
Traditional organizational units are naturally
hostile to integrated processes, seeing them as
threats to their power. So organizational and
management structures have to be changed in
fundamental ways. That doesn’t mean,
though, that existing vertical units such as
functional, regional, or product groups are
simply disbanded—in even the most processfocused business, vertical units continue to
play essential roles. Rather, it means that horizontal and vertical management structures
have to coexist, not just in peace but in partnership. Not only does a company have to redistribute management responsibility, it has to
change its basic management systems, and
even its culture, to support a new balance of
power.
The Role of the Process Owner
The most visible difference between a process
enterprise and a traditional organization is the
existence of process owners. Senior managers
with end-to-end responsibility for individual
processes, process owners are the living embodiment of a company’s commitment to its
processes. To succeed, a process owner must
have real responsibility for and authority over
designing the process, measuring its performance, and training the frontline workers
who perform it. A process owner cannot serve
just as an interim project manager, active only
while a new process design is being developed
and put in place. Process ownership has to be
a permanent role, for two reasons. First, process designs need to evolve as business conditions change, and process owners need to
guide that evolution. Second, in the absence of
strong process owners, the old organizational
structures will soon reassert themselves.
The advent of process owners is a dramatic
change for most organizations because it separates the control over work from the management of the people who perform the work.
Traditionally, a geographical or functional
manager oversees both the work and the people who do it. In a process enterprise, the process owner has responsibility for the design of
page 3
How Process Enterprises Really Work
Texas Instruments’
business leaders soon
realized that it was
impossible to
superimpose an
integrated process on a
fragmented
organization.
the process, but the various people who perform the process still report to the unit heads.
That kind of split in authority may be hard for
many executives to imagine, but there are
companies that are making it work today.
One example is Duke Power, a true pioneer
of the process enterprise. The electric utility
arm of Duke Energy, Duke Power serves nearly
2 million customers in North and South Carolina. In 1995, with deregulation looming, it realized that it had to do a much better job of
customer service if it was to survive the onslaught of competition. But the existing organizational structure of Customer Operations, the
business unit responsible for delivering electricity to customers, was getting in the way of
service enhancements. The unit was divided
into four regional profit centers, and the regional vice presidents, overwhelmed by an
endless stream of administrative duties, had little time for wrestling with the details of service
provision. And even if they had, there was no
way to coordinate their efforts across the regions. No one, in short, was responsible for
how the company was delivering value to customers.
To solve the problem, Duke Power identified five core processes that together encompassed the essential work that Customer Operations performed for customers: Develop
Market Strategies, Acquire and Maintain Customers, Provide Reliability and Integrity, Deliver Products and Services, and Calculate and
Collect Revenues. Each process was assigned
an owner, and the five process owners, like the
four existing regional vice presidents, reported
directly to the head of Customer Operations.
In the new structure, the regional vice presidents continue to manage their own workforces—the process units have only small
staffs—but the process owners have been
given vast authority over how the company operates. First, they are responsible for designing
their respective processes. They define how
work will proceed at every step, and the regions are expected to follow those designs. Second, and just as important, the process owners
are responsible for setting performance targets, establishing budgets, and distributing
those budgets among the regions. In other
words, while the regions continue to have authority over people, they are evaluated on the
basis of how well they meet the targets set by
the process owners, and their budgets are in
harvard business review • november–december 1999
large part roll-ups of the monies disbursed by
the process owners. The regional vice presidents have no choice but to work in partnership with the process owners.
The new structure has proven to be a great
success, focusing the entire organization
much more directly on the customer. Virtually every activity involved in serving customers has been redesigned from the ground up.
For example, the process owner for Deliver
Products and Services, Rob Manning, has
worked with the regional units, with suppliers, and with his own ten-person staff to devise a new way to organize warehouse facilities. Parts that will be required by installation
crews, for example, are laid out the night before for easy pickup in the morning, so that
the crews can load their trucks and be on the
road in 10 minutes, a fraction of the 70 minutes it used to require. The crews can do more
installations in a day, so customers don’t have
to wait as long to get service.
Manning has also revamped the way the
company works with its building-contractor
customers. As recently as late 1996, Duke
Power was meeting only 30% to 50% of its
commitments to those customers—laying cables by a certain date, for example. That created difficulties, as those customers based their
construction schedules around Duke Power’s
promised dates. The problem was that the people making the commitments did not have an
accurate picture of the availability of individual field-workers. They could not ensure, therefore, that the required skills would be in the
right place at the appointed date. Manning
and his team deployed a new scheduling system that provides much more detailed information about the availability of field personnel, enabling more specific and accurate
assignments. They also designated people to
negotiate commitment dates with contractors
and keep them apprised of changes. Finally,
they underscored the importance of meeting
commitments to customers by measuring the
percentage of deadlines met and by publicizing each region’s results on a daily basis. Duke
Power now meets 98% of its construction commitments.
A New Style of Management
Duke Power has learned that becoming a process enterprise is more than a matter of establishing new management posts and rejigger-
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How Process Enterprises Really Work
Process owners can’t
simply order process
workers to do their
bidding. The role
requires three critical
skills: influence,
influence, and influence.
ing responsibilities. As lines of authority
become less clear-cut, the way managers interact with one another and with workers also
has to change. Style is as important as structure. Process owners, for example, can’t simply
order process workers to do their bidding.
They have to work through the unit heads—
the regional VPs, in Duke Power’s case. Manning says that his role requires “three critical
skills: influence, influence, and influence.”
Unit heads, for their part, have to negotiate
with the process owners to ensure that the
process designs are sound, the process goals
reasonable, and the resource allocations fair.
The split in authority, in other words, makes
cooperation unavoidable. If you don’t work together, you fail.
Duke Power’s managers, like those of most
companies, were not accustomed to such a collaborative style. At first, the process owners
and regional VPs tended to act more as rivals
than as partners. The problem wasn’t resolved
until all the managers sat down together and
developed a document they called the “decision rights matrix.” The matrix specified the
roles the different managers would play for
each of the major decisions made in the organization, such as changing a process design,
hiring people, setting a budget, and so on. It
detailed, for example, which managers would
actually make the decision, which had to be
consulted beforehand, and which had to be informed afterward. In effect, the matrix was the
organization’s road map for managerial teamwork. Today, the managers rarely have to consult the matrix—they’ve internalized it. But
the specificity and clarity of the matrix gave
the managers a concrete sense of how the new
organization would work, and the very process
of creating it gave them an appreciation for
the new, more collaborative style of management.
The five process owners also had to learn to
collaborate closely with one another. Processes, after all, aren’t islands onto themselves.
They overlap, since the same workers are often
involved in several processes, sometimes simultaneously. At Duke Power, for example, the
same group of field personnel installs lines
(part of Deliver Products and Services) and
maintains them (part of Provide Reliability
and Integrity). Initially, that overlap created a
conflict. Installations almost always had hard
deadlines, reflecting customers’ need for pre-
harvard business review • november–december 1999
cise commitment dates, but maintenance jobs
often did not. As a result, maintenance kept
getting pushed to the back burner. The two
process owners got together to work out a new
arrangement: certain field personnel would be
dedicated to each process, and the rest would
form a floating pool available to work on either process. The Provide Reliability and Integrity process owner also agreed to schedule routine maintenance in the spring and fall
whenever possible, creating greater installation capacity during the summer, when demand was highest. In addition to meeting informally to solve particular process conflicts,
the five process owners meet regularly in formal sessions with their boss, the head of Customer Operations, to review and coordinate
operational plans, budgets, performance measures, and the like.
If a company is going to make itself over
into a process enterprise, it needs to change
not only the way its managers interact with
one another but also the way they relate to
frontline workers. Process teams composed of
individuals who have broad pro-cess knowledge and who are measured on process performance have little need—or room—for traditional supervisors. The teams themselves take
over most of the managerial responsibilities
usually held by supervisors. Supervisors, in
turn, become more like coaches, teaching the
workers how to perform the process, assessing
their skills, overseeing their development, and
providing assistance when requested. At Duke
Power, in fact, the once ubiquitous foreman
position has disappeared entirely, replaced by
a new role—the process coordinator.
Because the coordinator coaches rather
than controls the people who perform the process, Duke’s traditional ten-to-one span of supervisory control has widened dramatically;
the typical process coordinator supports 30 to
40 people. (In some companies, the number is
as high as 70.) There are also now far fewer
managerial levels at Duke; instead of six levels
between the front line and the regional vice
president, there are only three. And as the process owners have taken over some of the
former responsibilities of the regional vice
presidents, the VPs, too, have become more focused on training and developing their people.
One Duke Power executive calls them “super
coaches.”
The process owners also play an important,
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How Process Enterprises Really Work
In a process enterprise,
the key structural issue is
no longer centralization
versus decentralization;
it’s process
standardization versus
process diversity.
if indirect, role in managing frontline workers.
They act not as coaches but as, to use Manning’s word, “evangelists,” promoting the process designs and representing the interests of
customers. As Manning puts it, “My job as a
process owner is to convince the people who
operate within my process that there is no
greater calling for them than to do what the
customer needs them to do and that the best
tool they have is the process we have given
them.” Manning performs this role by designing and delivering training programs to process
workers; by setting performance targets; and
by regularly talking with them, keeping them
informed of changing customer needs and listening to their concerns and ideas.
Traditional styles of management, to sum
up, have no place in a process enterprise. Managers can’t command and control; they have to
negotiate and collaborate. They can’t wield authority; they have to exert influence. Any company hoping to turn itself into a process enterprise needs to understand the changes in
managerial style that will be required and their
implications for staffing and training. Few
managers will be able to make the transition
easily, and some may not be able to make it at
all.
The Question of Process
Standardization
Companies made up of many different business units will face an important strategic
question as they make the shift to a process enterprise: Should all units do things the same
way, or should they be allowed to tailor their
processes to their own needs? In a process enterprise, the key structural issue is no longer
centralization versus decentralization—it’s
process standardization versus process diversity. There’s no one right answer. IBM, Duke
Power, and Progressive Insurance, for example, have opted for standardization. They designate a single owner for each process, and
that person develops and installs the same process design throughout the company. American Standard, in contrast, has different process
owners and process designs in each of its
major business units.
Process standardization offers many benefits. First, it lowers overhead costs, since the
process requires only one owner with one staff,
only one set of documentation and training
materials, and only one information system.
harvard business review • november–december 1999
Second, a company with standardized processes presents one face to its suppliers and
customers, reducing transaction costs both for
them and for itself. By standardizing its procurement process across all its business units,
IBM has been able to create a single list of approved vendors, enabling the company to aggregate its purchases and giving it much more
leverage over suppliers. Owens Corning has
standardized its order fulfillment process
across all its divisions, which share many of the
same customers. That’s great for customers—
they only have to submit one order, receive
one invoice, and pay one bill. It’s also great for
Owens Corning, which has saved millions in logistics costs by consolidating shipments from
different divisions.
Third, and perhaps counterintuitively, process standardization can increase organizational flexibility. When all business units are
performing a process the same way, a company can easily reassign people from one unit
to another to respond to shifts in demand. Its
organizational structure becomes much more
plastic.
As compelling as the arguments for standardization are, process diversity offers one big
advantage: it allows different kinds of customers to be served in different ways. The industrial customers who buy Texas Instruments’
digital signal processing chips to put in their
cameras and cellular telephones require rapid
responses to design changes, whereas the retailers who sell calculators demand fast replenishment of standard products. Trying to serve
both groups with the same order fulfillment
process would backfire, leaving each dissatisfied. Recognizing that fact, Texas Instruments
allows its business units to design and manage
their own order fulfillment processes.
Some companies have decided to standardize certain processes but not others. HewlettPackard, for example, standardizes procurement to gain leverage with vendors, but it allows a variety of product development processes, reflecting the wide variation in its
products and in the customers who buy them.
Johnson & Johnson has largely standardized its
R&D processes throughout its pharmaceutical
business units to encourage them to share people and ideas and to enable all R&D projects to
be managed as a single coherent portfolio. At
the same time, different units go their own
ways in designing sales and manufacturing
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How Process Enterprises Really Work
The Infrastructure of the Process Enterprise
Traditional ways to measure performance, determine compensation, provide training, and
even organize facilities are tailored to vertical
units, not processes, and to individuals, not
teams. Companies making the shift to a process enterprise will need to take a fresh look at
many of the basic elements of their organizational infrastructure.
them throughout the organization to reinforce people’s awareness of the process and
to focus them on its performance. Since the
same process measures are used to gauge
the performance of everyone involved in the
process, the metrics also help to reinforce
teamwork.
Measurement
If frontline personnel and managers are to
focus on processes, their compensation
should be based at least in part on how well
the processes perform. All process teams at
Allmerica Financial have concrete performance goals set by the process owners, such
as targets for the time required to process
applications and the percentage of contracts
issued without errors. The team members
receive bonuses based on achieving those
goals, and the process owners can award additional bonuses to members who make outstanding contributions. At American Standard, the compensation of process owners is
based on three factors: process performance,
business sector performance, and corporate
performance. The heads of regional business
units at Duke Power are assessed not only
on the bottom line of their regions but also
on how well they meet their process goals.
Compensation
Most businesses lack rigorous measures for
their processes. They may know their manufacturing costs and their product sales down
to the penny, but they don’t know exactly
how often they fill orders flawlessly or precisely how long it takes a new product to go
from conception to profitability. Indeed,
they’re usually not even sure what aspects of
their processes they ought to be measuring.
Their measurement systems conform to the
very organizational boundaries that their
processes transcend.
In moving to a process enterprise, therefore, managers need to conduct a thorough
analysis to determine what aspects of process performance are most directly linked to
achieving the organization’s overall objectives. Duke Power has conducted such an
analysis. It identified its overarching strategic goals—such as providing reliable and
competitively priced electric power and hassle-free customer service—and has determined how each of its processes would affect
those goals. It then established relevant process performance measures. For the Deliver
Products and Services process, the measures
include the percentage of projects completed by the date promised to the customer,
the percentage of installations done correctly the first time, and the time it takes the
call center to respond to a customer’s inquiry. Measures for the Provide Reliability
and Integrity process include the number of
outages, the number of outages lasting more
than two hours, and the accuracy of restoration times given to customers who have lost
power.
Process owners not only use the metrics
to track the status of a process and guide improvement efforts, they also disseminate
Facilities
In most companies, people are housed in
vertical departments, according to their
function, their region, or their business unit.
But because processes cut across those vertical divisions, process workers need to be
drawn from them into a new location where
they can work as a team. At Owens Corning,
for instance, many different employees are
involved in filling an order, from customer
service representatives to transportation coordinators to accounting personnel. In the
past, each of those people worked in a separate location, surrounded by others in the
same functional specialty. Now all those involved in order fulfillment are located together. By sharing the same facility, they get
a better view of the entire process, and they
are able to exchange ideas easily. American
Standard has undertaken a radical program
harvard business review • november–december 1999
of co-location, creating shared spaces for all
of its process teams. When all work is process work, all space becomes process space.
Training and Development
In traditional organizations, many people
have relatively narrow jobs and need to
know little outside the scope of their own department. For a process team to succeed,
however, all the members must understand
the whole process and how their individual
efforts contribute to it. Usually, workers will
need to be trained to take on their broadened roles. Duke Power, for instance, puts all
its linemen through a class called “Thriving
in a Process Organization,” which gives
them a basic grounding in the electric
power industry, covering such topics as deregulation, utility cost structures, and customer requirements. It also gives them an
appreciation of the concept of a business
process, a detailed understanding of their
own process, and training in the personal
skills needed to work collaboratively.
Career Paths
There is less need for middle managers in a
process organization than in a traditional
one. Process owners design and measure the
process, and process teams carry it out, overseeing their own work and making all the
day-to-day operating decisions required to
keep things moving smoothly. As a result,
most of the rungs on the traditional managerial career ladder disappear. A process enterprise therefore needs to develop new career
models that are not based on traditional hierarchical advancement. Allmerica Financial, for instance, offers employees two new
career models. One is based on mastering a
specific insurance discipline, such as claims
handling. Claims personnel who develop
greater knowledge and skills are assigned
more complex claims and get a higher base
pay—without a formal change in level. The
other model offers a career path through
many parts of the company—from claims to
IT to underwriting, for instance.
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How Process Enterprises Really Work
processes tailored to the unique characteristics of their products.
Our rule of thumb is that companies should
standardize their processes as much as possible
without interfering with their ability to meet
diverse customers’ needs. However, we have
learned that it’s usually harder to impose standardized processes than to allow diversity. A
corporate executive proposing standardization
will almost certainly be met with a chorus of
“but we’re different” from divisional general
managers. Some of the resistance may reflect
legitimate concerns about whether a standard
process can meet the needs of different units
and different customers—and in those cases
standardization may indeed be a mistake. But
the resistance may simply be the death rattle
of divisional autonomy. General managers are
accustomed to seeing themselves as entrepreneurs running their own businesses; the corporate center is supposed to give them resources
and demand results but otherwise keep out of
their way. While corporate executives should
be prepared for this reaction, they should not
give in to it. The rewards of standardized processes are great, and they’re worth fighting for.
Making the Transition
Making the shift to a process enterprise involves much more than just redrawing an organizational chart. The changes we’ve discussed are fundamental ones, representing
new ways of managing and working, and they
are not easy to make. They require the full attention and commitment of the organization.
Unfortunately, most companies today are
swimming—or sinking—in a sea of change
programs. (One large retailer we’ve studied
stopped counting after 250.) The proliferation
of change efforts causes harm in many ways: it
consumes resources, creates confusion, and
encourages cynicism. Before launching a process enterprise initiative, management needs
to take a hard look at all its change programs,
pruning those that aren’t relevant to process
management and merging those that are. Distractions must be kept to a minimum.
The move to a process enterprise should be
connected with an overarching strategic initiative. At American Standard, for instance, the
building of a process enterprise was positioned
as a way to achieve the company’s long-term
goal of reducing working capital by slashing
cycle times and inventory levels. At Owens
harvard business review • november–december 1999
Corning, the effort was linked with the ERP
implementation. At Duke Power, it was tied to
deregulation, and at IBM, it was connected to
creating a truly global business. Other companies have linked their programs to a move into
electronic commerce, the implementation of a
merger, or the integration of a supply chain.
One particularly effective way to underscore the importance of the effort—and to
help ensure its success—is to appoint high-profile, respected executives as process owners. By
putting its best people in these positions, management emphasizes the high priority it places
on process management and ensures that the
process owners will be taken seriously.
In addition to being focused on the transition, organizations need to have a realistic
sense of the sacrifices and disruptions it will
entail. A shift to a pro-cess enterprise isn’t a
quick fix; it doesn’t happen overnight. American Standard announced its transformation
into a process enterprise on January 1, 1995,
but it hasn’t yet completed its journey. IBM,
Duke Power, and the other companies we have
discussed are also still working on aligning
some aspects of their businesses with their processes. Executives need to prepare themselves
for years of effort and set the organization’s expectations accordingly.
Not everything needs to be done at once, of
course. Process owners should be appointed
immediately, as they will guide the entire effort. A process-based measurement system
should be established at the outset to track the
effort’s progress. But expenditures on employee-training programs, compensation systems, and other costly or complex infrastructural elements can often be deferred. (See the
sidebar “The Infrastructure of the Process Enterprise.”) Instead of trying to build a companywide infrastructure at the start, it’s best to
focus first on achieving some tangible benefits
quickly. Without clear early signs that the desired gains will materialize, people will grow
anxious and begin to resist the changes, and
the entire effort will lose momentum. At Texas
Instruments, for example, the success of the
product development process helped convince
the organization of the virtue of process management, and the company is now extending
the approach into supply-chain, retailer-engagement, and other processes.
Companies with many business units have
sometimes found it useful to designate one
page 8
How Process Enterprises Really Work
unit to take the lead. That unit becomes a kind
of organizational prototype. Through its experience, the company as a whole can identify
and rectify problems, promote benefits, and
set a course for others to follow. At John Deere,
for instance, two divisions have taken the lead
in becoming process organizations: John Deere
Healthcare and one of the equipment-manufacturing units, the Worldwide Construction
Equipment division. Other divisions within the
company now have the opportunity to learn
from their experiences and build on their best
practices.
Because the changes involved in becoming
a process enterprise are so great, companies
can expect to encounter considerable organizational resistance. We have found, though, that
it’s rarely the frontline workers who impede
the transformation. Once they see that their
jobs will become broader and more interesting, they are generally eager to get on board.
Rather, the biggest source of resistance is usually senior functional executives, division
heads, and other members of the top management team. These senior executives will often
either resent what they see as a loss of autonomy and power or be uncomfortable with the
new, collaborative managerial style. If allowed
to become visible, their reluctance will soon be
amplified throughout the rest of the organization. CEOs, therefore, need to take particular
care in communicating to unit heads, involving
them in the change effort, and gaining their
full commitment. They should be prepared to
dismiss anyone who steadfastly refuses to support the initiative. In our experience, it is not
uncommon for anywhere from a quarter to a
half of the senior team to leave—voluntarily or
otherwise—during the changeover.
Looking to the Future
Given the challenge of shifting from a traditional business to a process enterprise, some
harvard business review • november–december 1999
may wonder if it’s worth it. We believe that,
for most companies, there is really no alternative. Process management is not merely a way
to address specific problems—poor quality,
say, or high costs. It is a platform for capitalizing on new opportunities.
Take e-commerce. The cutthroat world of
the Internet places a premium on the swift and
flawless execution of processes. As Amazon.com and other e-commerce leaders have
discovered, if you deliver orders on time and
with no problems, customers return to your
site. If you botch orders, customers won’t give
you a second chance. Putting a Web site in
front of a flawed process merely advertises its
flaws. The same goes for business-to-business ecommerce. If your processes are not totally reliable, you can forget about being a supplier to
Dell or any other of today’s turn-on-a-dime
manufacturers.
But just as important as having smooth, efficient processes is being able to redesign those
processes on the fly. From order fulfillment to
customer service to procurement, operating
processes are rarely fixed any more. They must
change their shape as markets change, as new
technologies become available, and as new
competitors arrive. Look at IBM. Having successfully redesigned most of its processes over
the last few years, it is now redesigning them
all over again to make them compatible with
the Web. Without the flexibility inherent in a
process enterprise, it would be next to impossible for IBM, or any company, to shift processes
quickly without disrupting its entire business.
A process enterprise is the organizational form
for a world in constant change.
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Further Reading
Harvard Business Review OnPoint
articles enhance the full-text article
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a selection of its company examples
to help you quickly absorb and apply
the concepts. Harvard Business
Review OnPoint collections include
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How Process Enterprises Really Work is also
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collection Ignore Operations at Your Peril,
Product no. 6565, which includes these
additional articles:
The Superefficient Company
Michael Hammer
Harvard Business Review
September 2001
Product no. 7699
Deep Change: How Operational
Innovation Can Transform Your Company
Michael Hammer
Harvard Business Review
April 2004
Product no. 6573
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page 10
Instructions
O
0
Case Study 2: How Process
Enterprises Really Work
Students are required to create a thread before
viewing other threads in this forum.
• Make an initial post by 11:59 pm CT on
Wednesday of this week, covering:
• Overview
o Summary
. What is a Process Enterprise?
• Benefits of BPR
. What are problems of Texas
Instruments?
. How can the problem be resolved?
. Who is in charge of processes of
Owens Corning and what’re their
responsibilties?
What was issue of the existing
processes of Owens Corning and how
can it be resolved?
. Except for the companies above,
select another company in the case
study and describe problems of the
company and describe how to
reengineer their process to resolve the
problems in details.
• Make two or more peer rebuttals by 11:59 pm
CT on Friday of this week.
• Response to rebuttals on your posting by
11:59 pm CT on Sunday of this week.
Grading Criteria
Initial posts need to:
address the discussion prompt;
o follow the netiquette policy listed in the
syllabus;
o be min. 500 words long;
o be submitted on time.
Peer responses need to:
o be substantive enough to move the
class discussion further;
.

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