claim and in their view Business Process Reengineering (BPR) reduces to a ..... De Michelis G. (1995): Computer Support for Cooperative Work: Computers ...
Alessandra Agostini and Giorgio De Michelis
Cost, value, knowledge and complexity: four critical features of business processes 1. Introduction In their best-selling book M. Hammer and J. Champy (1993) claim that "Business Process Reengineering means putting aside much of the received Wisdom of 200 years of Industrial Management." But the book does not follow the above claim and in their view Business Process Reengineering (BPR) reduces to a radical rationalisation of the processes of a company on the basis of their expected outcomes, without any critical analysis of the core concepts of Industrial Management and Industrial Organisation (process, organisation, management, information systems, ...). After three years, Hammer (1996), reacting to the critiques following a number of failures in BPR projects around the world (Hall et al., 1993; Davenport et al., 1996), reconsiders his emphasis on the necessity of radical changes to claim that the critical factor in BPR is the process, underlining the relevance of the human factors for the effectiveness of business processes and proposing a combination of radical reengineering and continuous improvement as the solution for avoiding the previous pitfalls. The above considerations are quite acceptable and reasonable but, on the one hand, they are too generic, since they reduce BPR to what can be found today in any good management book without discussing why following those guidelines is so difficult (Butera & Schael, 1997) while, on the other, they forget the necessity of "putting aside much of the received Wisdom of 200 years of Industrial Management." While many observers have expressed their satisfaction for the failure of BPR considering it as one of the many buzzwords invented in the last fifties years within management theories, we regret that Hammer and Champy did not deepen the claim opening their book. As it is argued also by some of the BPR critiques appeared in the last years (Butera & Schael, 1997) we think in fact that the crisis of the rationalistic perspective, majoritarian within almost all the disciplines focusing on organizational behaviour, is real and needs a deep discussion. We are sustained in our belief by the fact that in almost all those disciplines a debate is open on the directions along which new perspectives can be indicated and discussed: within Industrial Organization the neo-classical economical model is abandoned to find answers to such questions as “What drives organizational innovation?” (Nelson & Winter, 1982; Dosi et al., 1988; Williamson & Winter, 1993; Pedersen, 1996); in Strategic Management new perspectives are opened to understand why firms differ, how do firms behave, what determines the success or failure of firms (Rumelt et al., 1994); Organizational Theorists try to understand the post-bureaucratic organization and the factors guiding organizational change
(Heckscher & Donnellon, 1994; Brown & Duguid, 1991); even in Information Systems a paradigm shift from algorithms to interactions is proposed by those working on Computer Supported Cooperative Work and Cooperative Information Systems (Schmidt & Bannon, 1992; De Michelis et al., 1997) and in broader sense within Computer Science (Wegner, 1997). This search for new paradigms reflects also the impossibility of understanding and managing some emergent phenomena in the market with traditional industrial management: the value recently recognized by the market to companies as Netscape or Lotus; the Motorola strategy investing a growing amount of resources in training and education; the software process at Microsoft, where large systems are built without the typical planning techniques of software engineering (Cusumano & Selby, 1995); the success of the Italian textile sector, where fashion designer lead small industrial empires; etc. Finally, the search for new paradigms is also the only way to deal with social values as sustainability not as constraints defined by political and/or ideological assumptions but as performance qualities contributing to the success of private firms and public institutions. From the point of view of the inadequacy of the rationalistic paradigms for understanding organizational behaviour, the BPR proposed by Hammer and Champy (1993) does not need to be weakened in order to avoid to get unexpected results by its application, but requires to be sustained by a radical rethinking of the conceptual categories on which management theories and management practices are based. Despite their claim for a new foundation of industrial management, Hammer and Champy, in fact, accept uncritically the way in which it uses words as process, value, cost, organization, management, so that they seem trying to ‘reengineer’ business processes without ‘reengineering’ the basic categories through which the latter are defined, performed and managed. This paper follows a different perspective: instead of mitigating the radicalism of BPR, it takes seriously the challenge of rethinking Industrial Management and Organisation discussing business processes from the point of view of a paradigm shift towards process-oriented, cooperative, knowledge creating, virtual, networked organizations (Brown & Duguid, 1991; Ciborra, 1993; Nohria & Gulati, 1994; Butera 1994; Nonaka & Takeuchi, 1995; De Michelis, 1995, 1997). We do not claim to have fully conceived a new approach to Industrial Management and Organization: our contribution is limited and partial. In particular, our attention is focused on the behaviour of private firms and public institutions. Business processes are considered as cooperative processes involving together clients and performers, where, on the one hand, the performances of the latter satisfy the requests of the former, on the other, both are involved in knowledge creating processes (De Michelis, 1995, 1997). Four key concepts are deeply transformed from the above analysis—cost, value, knowledge and complexity—offering new hints on BPR and change management. From this point of view sustainability is not a constraint to be respected by the actors of the market but a (social) value to be created by them.
2. Cooperative Processes Organizational behaviour has been observed either from an external point of view, focusing on business processes, or from an internal one, focusing on work processes. The above distinction dissolves if we look at the social practice constituting the organizational behaviour, since the attention focuses on actions and inter-actions no matter who is involved in them, customers and/or performers. From the practice viewpoint, the organizational behaviour is constituted by cooperative processes (De Michelis, 1996). As a social phenomenon a cooperative process is complex: the group involved in it is a network of social relationships that cannot be reduced to any functional and/or hierarchical model. Despite any attempt to plan its evolution with respect to its expected outcome, what its history will be is unpredictable. For instance, the participants in a cooperative process change from time to time, since some actors may leave it and new ones join it, while some actors have a temporary engagement in it; moreover, while performing, they change their understanding, their image of the requested actions, their ways of performing them, their mutual agreements in a history of successes and failures, all in a common experience of action, communication and learning. A cooperative process can be characterized by the communicative relations binding its participants to each other and with the actions they are performing (Winograd & Flores, 1986; Medina-Mora et al., 1992; De Michelis & Grasso, 1994; De Michelis, 1995, 1997). The basic communicative relations within a cooperative process are therefore the conversations giving rise to the cooperative process itself, where the customers (i.e., those who have a condition to be satisfied) and the performers (i.e., those who can satisfy it) reach an agreement on the actions to be performed and share the evaluation of their execution. The actions performed within a cooperative process are, in fact, embedded into the conversations between its customers and its performers. Moreover, since a cooperative process, if not a trivial one, has more than one customer and more than one performer, a cooperative process is also characterized by the relations among the customers and the relations among the performers. Let us spend some words about the terms customer and performer. While these terms are generally used to define the roles of market actors, in this context customer and performer do not define roles, they define positions. A customer is not a person who has the role of making requests to the performers within a cooperative process—although this is what reveals the market in the classic economy—it does not capture the essential features of cooperative processes. On the contrary, it is the fact of making a request for action that puts a person in a customer position, while agreeing to satisfy a request for action means assuming a performer position. Cooperative processes are to some extent recursive; in fact, an action to be performed within a cooperative process can be considered as a cooperative process in itself (i.e., a sub-process). Besides, in order to make a requested action possible, often either the performers or the customers must do some additional unforeseen actions. Anytime a performer, while performing an action, needs some help, there is a temporarily shifting of her position from a performer to a customer position. In the other side, if a customer is requested to provide some information, then she temporarily change her position becoming a performer. The success of a cooperative process depends not only on the effectiveness of its actors in all their positions
relations but also, and to a greater extent, on their capability to switch from a position to another one when necessary. 2.1 Rethinking cost and value It should be clear now that understanding a cooperative process taking into account only the practices of its performers—as many studies currently do from sociological and/or anthropological perspectives—is impossible. On the one hand, within a cooperative process there is not a fixed distinction between customers and performers: even if with respect to a requested performance their distinction is clear, during its history all its actors are sometimes performers and sometimes customers. On the other hand, both customers and performers are participants in the cooperative process, they cooperate in it consuming some resources and creating together its value. Although the value of a cooperative process depends on the condition of satisfaction of the customers, it is not created by the performers for the customers (this is what the classic model of economy says, but from our point of view it is a mystifying abstraction and simplification). The customers themselves contribute, in fact, to the process (e.g., specifying their condition of satisfaction in terms of a clear request for action, publicly claiming how much the performers satisfied them, etc.); despite the asymmetry of their mutual positions it is impossible to separate the contributions to the value of a cooperative process from, respectively, its customers and its performers. Moreover, the customers are not the only ones to benefit from the value of a cooperative process: both customers and performers get some value from it. Within a cooperative process its actors consume some resources (have some cost) and create some value. The value of a cooperative process cannot be reduced to the price its customers pay the performers. The latter compensates, often inadequately, the difference between their respective value/cost ratios, but neither does it make its value for the performers visible, nor does it help understand the real nature of the value itself. In very general and abstract terms, the value of a cooperative process can be characterized by the increase of the potential for action it generates; and its cost can be characterized by the potential for action it extinguishes. In more concrete terms, the knowledge—the practical knowledge, the knowledge for action—generated within a cooperative process can be considered the principal component of its value. For both customers and performers, a successful cooperative process generates new knowledge: thanks to it, the former become able to overcome the problem for which they asked help, while the latter increase their experience, improving their effectiveness in future performances as well as their public reputation. Nelson and Winter in their evolutionary economics (1982) and Nonaka and Takeuchi with their knowledge creating organization model (1995) offer many arguments to support this point. It is interesting to underline that cooperative processes reflect quite closely service relations, that are frequently characterized by the active role of the customers and by their strict cooperation with the performers (Bowen & Schneider, 1988; Van Gorder, 1990). This fact is not casual since the notion of service is always more influencing any type of business relation: products themselves often embody valueadded services or are transformed into services; inter-departmental and/or interfunctional relations are considered service relations inside organizations.
2.2 Managing complexity As asserted at the beginning of this section, as social phenomena, cooperative processes are complex. The complexity of a cooperative process affects both its value (with low complexity only little value can be created) and its cost (high complexity consumes time and resources of various types), with respect to both its customers and to its performers. The word complexity, having a rather vague and ambiguous meaning, needs some clarification to avoid considering complexity and complication as synonymous. Complexity defines a problem that is not only complicated, difficult and time and/or space consuming to solve, but even not solvable. In this paper complexity is characterized as the quality making a phenomenon not reducible to any explicative model. We can consider that the complexity of a cooperative process derives directly from the combination of two factors: its multiplicity and its autonomy. The multiplicity of a cooperative process generates its complication; it depends on the many actors, artifacts and events characterizing it: on the variety of its customers and performers, of the tools used within it, of the rules shaping it from the organizational viewpoint, of the actions and conversations occurring within it, etc. The autonomy of a cooperative process generates its unpredictability; it depends on the autonomy of the human beings participating in it and on the factors determining their impact on its performance: the quality of their professional skills and the degree of their engagement in different processes; the difficulty of the actions they must perform and/or the frequency of breakdowns occurring; the degree of parallelism of their performances, etc. Coming back to the relationships between the complexity of a cooperative process and its value and cost, we can distinguish between external complexity generated from the requests for action (determining the value of a cooperative process) and internal complexity created while performing the action itself (determining the cost of the cooperative process). Then the effectiveness of a cooperative process can be characterized by its capacity to face great external complexity with little internal complexity. From this point of view, BPR should not reduce itself to the simplification of the flow of work within the process, even if simplification may play an important role in it: rather, it should focus on reducing the internal complexity without affecting the external one. If we assume this broader point of view, then ‘reengineering’ becomes part of a radical rethinking of Industrial Management and Organization. This would be impossible if we considered business processes as input-output transformation processes and we restricted our attention on their performers without paying attention to their communication flow and to the customer-performers relationships characterizing them, as most BPR practitioners and even Hammer and Champy seem to do (1993). Taking into account the dynamic nature and the unpredictability of a complex cooperative process, the main factor allowing to face great external complexity with little internal complexity is the knowledge its actors share and create; that is, their individual and collective learning practice (about the cooperative process history and expected outcomes, about the competencies needed to perform in it, etc.).
2.3 Improving knowledge creation Knowledge creation processes within organizations have been characterized by Nonaka and Takeuchi (1995) in terms of tacit and explicit knowledge transformation processes. They are not interested in knowledge per se, but in the process through which knowledge is continuously created, modified, updated: that is, on the practice through which human beings increase their ability to perform individually and collectively. In other words, the attention is focused on pragmatic knowledge, on knowledge for action, both when it is embodied in the skills of the individuals (tacit knowledge), and when it is described in documents and/or information bases (explicit knowledge). Moreover, instead of considering new knowledge as something that is added to the previous, they conceive it as something that transforms it, and therefore knowledge creation is performed through knowledge transformation. As shown in Figure 1, four types of knowledge transformation processes, characterizing four social interactions, are possible. The effectiveness of a cooperative process depends on its keeping alive all of them. Tacit knowledge
Tacit knowledge
to
Explicit knowledge
Socialization
Externalization
Internalization
Combination
from
Explicit knowledge
Figure 1: Knowledge transformation processes (Nonaka & Takeuchi, 1995, p.72).
Coupling the four types of knowledge transformation proposed by Nonaka and Takeuchi with the positional relations binding the actors of a cooperative process (Figure 2) discussed previously provides new interesting issues with respect to the cost/value of a cooperative process (De Michelis, 1997). Tacit knowledge is indirectly exhibited by the actors of a cooperative process when they are performing, while explicit knowledge is exhibited when they are making a request. On the one hand, a person performing an activity that falls within her domain of competence knows how to do it (even if she could not to explain it); and a group of persons performing effectively together are able to interact and/or synchronize silently without spending time in explicit explanations. On the other, a person cannot make a request for performance to other people without making explicit her request (in a document or at least in some precise words). Therefore, externalization and internalization happen in a customer-performer relationship and, in order to get a successful cooperative process, both internalization and externalization must occur in it. If externalization is missing, then the customers do not get any value from the performance of the performers; if internalization is missing, then the performers cannot understand the conditions of satisfaction to be met. Internalization and externalization characterize the mutual learning between
customers and performers within a cooperative process; that is, their capability to cooperate. Performers
Customers
Performers
Socialization
Externalization
Customers
Internalization
Combination
Figure 2: Customers and performers and knowledge transformation.
Socialization and combination are also relevant in complex cooperative processes, since they are, respectively, the processes through which performers and customers absorb complexity without spreading it into the process itself. Through socialization the performers are enabled to cooperate smoothly and effectively changing their synchronization in accordance with the changes of the context and of the condition of satisfaction of the customers. Through combination the customers get and maintain their agreement on the request they make to the performers. We like to recall that in the same way as the actors of a cooperative process continuously change their mutual positions, each knowledge transformation type cannot be taken into account alone, disconnected from the others. For instance, successful socialization may require that externalization, internalization and/or combination are performed effectively. Therefore, both private firms and public institutions must become effective in all four knowledge transformation types, as underlined also by Nonaka and Takeuchi (1995). 3. Four basic categories for understanding cooperative processes Cooperative processes, as presented in the previous section, offer a rich conceptual framework to reconsider the basic categories of Industrial Management and Organization. Let us list some of the hints they offer. 1.
2.
Business and/or work processes are not reduced neither to input-output transformations nor to exchanges between customers and performers. They are considered as cooperative processes between customers and performers. Both the value and the cost of a process are shared by customers and performers, and depend on their situated evaluation. When Fiat, as any other car maker in the world, is transforming its relations with its component providers into a partnership, it is de facto adhering to this view. Both customers and performers get a cost and a value from a cooperative process. The price the former pays to the latter is a compensation of their cost/value ratios; it is not the measure neither of the cost of the performers nor of the value of the customers. This view supports, for example, the relationship binding together the firms participating to the construction of aeroplanes.
3.
4.
5.
Any value created within a cooperative process has a customer (or a performer) who gets it. If it is required that a process creates a social value, then there must be a social customer requesting it and declaring its satisfaction. With respect to social values, it is necessary that public institutions play the role of social customers: e.g., when a government introduces some regulations and/or incentives for the development of clean production processes, then it is acting as a social customer. This means that regulations and incentives must be continuously verified with respect to their effectiveness rather than with respect to their juridical correctness. The complexity of a business process and of the community of its actors has to deal both with its cost and with its value. Complexity has to be analyzed from the point of view of its source (internal and/or external) in order to avoid that reducing it also the value is affected. The standardization of services and/or products is ineffective with respect to improving the productivity of a process, if together with its cost reduces its value. This is the reason why in many production processes standardization is developed at the level of the components, leaving as large as possible the variety of the products offered to the customers. The improvement of the performances of business process has to deal with a larger set of values than pure monetary gain. The increase of knowledge has to be taken into account. The investments in learning and in information sharing many innovative firms do year by year follow this criterion.
4. Conclusion Up to now we have used in various parts of this paper the term sustainability without making explicit the sense we are attributing to it. It is time, now, to clarify what we mean with it. Any performance is sustainable if, while producing its expected value, it does not create conditions destroying, sometimes in the future, other values. Sustainability can therefore be defined with respect to the physical environment, but not only with respect to it: a performance can be non sustainable in social terms, for the impact it has on the quality of some social aggregates (e.g., on the structure of urban centers, on the quantity and quality of work positions, on the degree of social relations it offers to some human beings (elderly, children, ...)). The separation between ecological and social sustainability disappears from the cooperative process point of view. Ecological sustainability, in fact, is a value of a cooperative process only if someone plays the role of the customer requesting it. The customer requesting ecological sustainability must be a public institution in order to grant that the latter is assumed as a universal value, not generating private advantages. If and when social movements mobilize to obtain the sustainability of a process (e.g., the building of a new airport or of a new energy plant), they are not becoming directly the customers requesting it, rather they are pushing a public institution to do it. As the value requested by a social customer, ecological sustainability becomes a social value, as any quality of our social life. Sustainability is not a physical quality, but a social quality observable at the physical level. The new concept of value introduced by the cooperative process perspective offers a new basis for reconsidering the role of public institutions with respect to business processes: their regulatory role in fact is brought inside the process making them social customers.
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Alessandra Agostini & Giorgio De Michelis Cooperation Technologies Laboratory - Department of Computer Science University of Milano Via Comelico, 39 - I-20135 Milano - Italy Tel: +39 2 55006 313/311, Fax: +39 2 55006 276 E-mail: {agostini, gdemich}@dsi.unimi.it
