MIT researchers calculate river networks’ movement across a landscape.
As I indicated in a recent letter to the MIT community, we all have a stake in the changes we are going through and the opportunities before us, and we need to talk about these issues as we move forward.
The following interview was based on many of the questions that I am most often asked about the reengineering activities currently under way. It was my intent to be as straightforward and specific as possible. Because we are mid-stream in our reengineering, however, we don't have all the answers. At this point, many activities are well under way, but most of the implementation and results are just beginning to emerge.
Q: Why is reengineering important to an institution whose focus is education, not profits?
A: In fact, it is because our focus is on education. We don't make profits, and most of our sources of income are strongly affected by external forces and public policy. We rely on tuition, on income from our endowment, on research revenues, and on gifts from individual and institutional friends. The only one of those sources that we can directly control is tuition, and we must keep tuition increases down as much as possible if we are to keep MIT affordable.
We are, of course, working to build broader support for MIT in the public and private sectors, but these efforts will only go so far. We also need to reduce our expenses and find ways to operate more effectively. And that is where reengineering comes in. Reengineering is providing us with a means to reduce our costs by, ultimately, simplifying and improving our administrative support services. Most of our current procedures have been developed over many years, and many have inefficiencies or complexities that can be reduced or eliminated. The extent to which we can reduce administrative costs will translate into more affordable education, more competitive research grants and a more solid financial foundation for our future.
In addition, I believe that reengineering will improve MIT's work environment by providing jobs that are both broader and more substantive. I also am proud that we are taking a leadership role in streamlining university administration. Our colleagues at a number of other universities are just beginning their reengineering efforts and have already sought our advice and guidance.
Q: What is our goal for reducing expenses, and how much have we saved so far?
A: In November 1993, we estimated that we needed to reduce our annual expenses by $40 million. In this fiscal year, we are spending about $9 million less than we would be if we hadn't begun reengineering activities. This is good progress, but there is still much work to be done.
Q: How much has reengineering cost to date?
A: At the end of September, the reengineering costs totaled $31.4 million, including approximately $18 million that is directly associated with the new SAP financial system. Unlike the recurring annual savings I referred to in the previous question, these are one-time expenses. Once spent, they will not be repeated in subsequent years. Normally, we would not consider the expense of developing and installing the SAP system to be "reengineering." In fact, this is a standard restructuring cost expected in all big organizations from time to time. Because we want to be clear and open about all the costs of adjusting to new times and improved processes, however, we have included these.
Q: Why did we decide to install a new financial management system?
A: In the early stages of reengineering, it became clear that a key to streamlining our work had to do with making better use of information technology to reduce work and to improve the financial information available both centrally and within the Institute's departments, laboratories and centers. We did not have an integrated system that would allow departments to purchase and pay for goods and services, account for and forecast personnel costs, track outstanding financial commitments and so forth.
As a result, many departments, in order to really understand what funds were available to them at any given time, had developed their own accounting systems. This meant that a great deal of information had to be manually transferred between the various systems, causing extra work and raising the possibility of error each time information was re-entered into the system. Additionally, we knew that many processes that generated massive paper flow and required multiple approvals had not been examined critically in years. It was clearly time to do a major overhaul rather than continue to modify our current systems.
MIT's financial system of record was changed this past September, and while this has not been without its difficulties, particularly in the area of payments to vendors, we experienced no more problems than other institutions undergoing such a massive change. But I fully understand that when a student or faculty member couldn't obtain needed equipment or supplies in a timely manner, the fact that errors are inevitable during such a massive changeover is of little significance. It is our obligation to drive the errors as close to zero as quickly as possible.
With regard to the second phase of SAP implementation, we are currently developing pilot programs with a few units and will incorporate the lessons from those pilot programs before releasing SAP to all the departments, labs, and centers.
Once the SAP system is fully implemented, we can expect that the financial information will be available in one place and in real time; there will be less re-keying of information; a large number of paper invoices will be eliminated; and payment of invoices will be made more quickly. [Editor's note: See article in box below for an example.]
Q: Where do we stand now with respect to staff reductions?
A: We originally estimated that a $40 million budget reduction would ultimately require the elimination of about 400 positions on campus. Through a combination of budget cuts, retirements, reengineering, changes in research funding levels and ordinary attrition, the size of the administrative, support, medical and service staff has been reduced significantly. As a result of reengineering activities and the retirement incentive alone, there has been a reduction of 160 positions on campus.
Looking ahead, we do not know precisely where or how many more jobs will need to be cut. Our ability to realize financial savings as we move forward will depend on our ability to translate the efficiencies identified by the reengineering teams into real changes in jobs. In general, we should expect to reduce positions in those areas where simplified and improved administrative processes allow us to accomplish the necessary work with less effort. That is why we haven't just cut every organization arbitrarily but instead have looked at the vision for the future.
Q: How many layoffs have been the result of reengineering?
A: While nearly 60 people have received layoff notices as a result of reengineering, most have been hired for other open positions at MIT. Several others accepted the retirement incentive and a few have left to accept positions outside the Institute. To date, 10 people have actually been laid off, although there are likely to be some more layoffs if those people currently on layoff notice do not find positions before their notice period ends.
Q: What kinds of skills will people need in the `reengineered' workplace, and will training be available?
A: As we look to an environment in which more work will be accomplished by groups working across traditional functions, people will need good communications skills, the ability to work well in teams and a strong service orientation. And because much of the improvement in work will be derived from the use of information technology, people should expect to have moderate-level skills in that area, such as word processing, use of spreadsheets, facility with e-mail and the Web, financial management systems and so forth.
We are developing more systematic ways to help people get the performance evaluation and career guidance they need, and we hope to provide individuals with more opportunities to assess their skills.
We will do everything we can to train people for new work at MIT, recognizing that in some instances we will need to hire new people with particular skills and experience. We will certainly provide the appropriate level of training in the use of the SAP system.
Much of the computer-intensive training will be offered in the Professional Learning Center established last May. The Personnel Office has a range of career development programs in place already, and the Human Resources Redesign Team has made a number of recommendations for career development and mentoring assistance that are under consideration.
Q: What are some tangible successes that have been achieved with reengineering so far?
A: We have saved several million dollars through contract negotiations with selected vendors, and have been able to maintain a significantly larger physical plant without adding custodial staff. In addition, we are beginning to see a variety of improvements in services to students, and expect to see more in the very near future as the newly organized Dean's Office and the Student Services Reengineering teams continue their work. [Editor's note: See article below for examples of several reengineering successes.]
Q: How long will reengineering last and is the end in sight?
A: We have to distinguish between the activities going on now, the new activities that we need to start, and the necessity to continue improving all of our processes-including the ones just reengineered. Everything now under way, under the direction of the Reengineering Steering Committee, should be finished in the last half of calendar year 1998. We need to decide how best to make the transition into a normal mode of continually improving our operations after that point.
Q: If you had it to do over again, would you still promote this reengineering effort?
A: Yes. We all want to leave MIT even better than we found it-better academically, better physically and better administratively. We are working hard and effectively on all three of these fronts. I am confident that when we look back in five years, we will find that MIT works much better for its students, faculty and employees because we will have integrated and improved many of its processes.
MIT's success and excellence in all dimensions stems from the quality of its people. We have adapted the methodology of reengineering to our specific needs. This activity has unleashed talent and ideas from people throughout the Institute that will enable us to be more efficient, effective, and economical. As we move forward, we must continue to realize that if we fail to save administrative costs, our ability to excel in education and research will be diminished.
When the going gets tough during this transition, just stop by the new Student Service Center on the Infinite Corridor, or lean back and envision the pile of 30,000 pieces of paper that no longer are signed, walked around, and processed through the Graduate Education Office in a given year.
A version of this article appeared in MIT Tech Talk on December 11, 1996.