Reengineering Business Processes: A Complexity Theory Approach To Value Added

Abstract

Today, there is no objective, countable way to measure value added by component processes before and after a reengineering effort and, therefore, no way to provide executives with return-based assurances. Objective value allocation among the component processes of a compound process cannot be gotten through existing approaches (e.g., generally accepted accounting practices, activity-based costing, economic value added, cost of quality, quality function deployment) (Drucker, 1993; Eccles, 1991; Johnson, 1992). These approaches focus on cost or various subjective assessments of value and cannot be used in return based financial ratios because they do not use comparably objective units of measurement (e.g., money). Using an extension of Kolomogorov’s Complexity Theory, this paper offers a solution to this problem. Specifically, this article proposes an approach to calculating return-on-investment at the component process level.