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Business process reengineering in developing economies: Lessons from microfinance institutions (MFIs) in Uganda

Innovation & Management Review

ISSN : 2515-8961

Article publication date: 19 June 2019

Issue publication date: 19 June 2019

The purpose of this paper is to study the relationship between organizational adaptability, institutional leadership and business process reengineering performance using the tested complexity theory in a developing economy setting.

Design/methodology/approach

This study is correlation and cross-sectional and adopts institutional-level data collected via questionnaires from reengineered microfinance institutions in Uganda. Cluster analysis as data mining technique was used to classify cases based on respondents’ opinions into homogeneous clusters. Nvivo was used to understand the perceptions of business process reengineering performance based on qualitative data. The authors used structural equation modeling to derive the predictive model of business process reengineering performance in a developing world setting.

The authors find that organizational adaptability and institutional leadership are key predictors of business process reengineering performance. Results reveal a predictive model of 61 per cent based on structural equation modeling for the study variables. Cluster analysis as data mining approach explored complex patterns of reengineered business processes.

Research limitations/implications

The use of cluster analysis is susceptible to problems associated with sampling error and absence of fit indices. However, the likelihood of these problems is reduced by the interaction with the data, practical implications and use of smart partial least square to generate structural equations based on derived measurement models of each study variable.

Practical implications

Policymakers of Bank of Uganda, Ministry of Finance and Economic Planning, should develop sound policies in relation to knowledge management, institutional leadership and adaptive mechanisms to enhance business process reengineering performance to take advantage of new knowledge opportunities for the improvement of their businesses.

Social implications

Given the results from structural equations generated, managers need to consider institutional leadership and organizational adaptability as key drivers of business process reengineering performance in microfinance institutions. The results confirm the significant role of institutional leadership, organizational adaptability in determining business process reengineering performance outcomes.

Originality/value

Unlike most of the business process reengineering literature, this study contributes to literature by domesticating and testing complexity theory to explain business process reengineering performance in developing economies.

• Business process reengineering performance
• Institutional leadership
• Organizational adaptability

Nkurunziza, G. , Munene, J. , Ntayi, J. and Kaberuka, W. (2019), "Business process reengineering in developing economies: Lessons from microfinance institutions (MFIs) in Uganda", Innovation & Management Review , Vol. 16 No. 2, pp. 118-142. https://doi.org/10.1108/INMR-03-2018-0010

Emerald Publishing Limited

Copyright © 2019, Gideon Nkurunziza, John Munene, Joseph Ntayi and Will Kaberuka.

Published in Innovation & Management Review . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Introduction and motivation

In this paper, we test the complexity theory and study the relationship between organizational adaptability, institutional leadership and business process reengineering performance in a developing economy setting using lessons from microfinance institutions (MFIs) in Uganda. The progressive globalization, complexity of customer service needs, global competition and dynamic demands in a competitive and ever changing environment has forced MFIs to radically redesign the core processes that deliver services efficiently and effectively. Accordingly, institutions are constantly inventing, redesigning new ways of serving clients better. The reengineered core processes include; cheque processing, loan management, customer service, queue management, microfinance systems, accounting processes, service delivery, data processing process, claims processing, process scheduling and application processing. These core processes are constantly changing to enrich the operational performance of MFIs.

In practice, models such as Malcom and technology acceptance have been widely used to automate, innovate, remove unnecessary processes and solve queuing decision problems. MFIs are restructured; systems, roles and tasks are combined. The core processes are sequentially designed, streamlined to ensure optimal oriented procedures, functions, maximum control, increased productivity and process performance. Further, innovative processes such as electronic queuing management systems and information microfinance management systems are adopted to ensure efficient operations. The reengineering practices call for the theoretical explanations. Following this line of reasoning, the theory of complexity advocates that as MFIs co-exist and co-evolve, they create new patterns of work, orderly emergent actions and adaptive behaviors which react to environmental forces ( Goldstein, 1997 ; McMillan, 2008 ).The theory draws attention to the emergence of new patterns and structures, path dependency, self-organizing, uncertainty and dynamic connectedness. The theory advocates for organizational adaptability and institutional leadership. MFIs such as FINCA and Centenary are co-evolving and adjusting their internal financial processes and reshaping new structures, reward systems and technologies to attain viable financial stability, meet the dynamic vast needs of the poor and serve them better. Accordingly, specific adjustments are necessary to capture the specificities of microfinance activities along with amending the existing regulations and creating a new regulatory framework for microfinance. Through the constant regulation and supervision, they are able to institute strong resilient and visionary leaders that create flexible structures, systems and technologies to withstand the turbulent forces of competition in the financial sector and meet the dynamic needs of the poor. MFIs are devising coalition networks and aligning vision with strategic goals. The theory elaborates the coalitions and networks among and between other financial services to ensure process innovations such as inters witch, internet banking and mobile banking in situations of complex interdependent social, economic, and political environments. Indeed, they are institutionalizing a leadership that spurs process changes. However, to a small extent, constant microfinance strategic plans and stagnant structures after business process reengineering implementation may not be exhaustively explained by theory.

Our study is motivated by a number of reasons. First, previous scholars in the field of complexity science have applied sophisticated linear business process models such as workflow models, yet the processes are complex and the environment is always changing very fast. The models largely ignore aspects of adaptive, absorptive and innovative capabilities, which may be theoretically explained. Empirical review of literature on business process reengineering performance provides empirical evidence that merely reengineering does not guarantee better results. Second, the failure of core processes, systems and structures of different MFIs to respond to the constant changing environment has resulted in operational inefficiencies such as customer queues, service delays and increased operational inefficiencies ( The World Bank Report, 2010 ). More so, over 70 per cent of reengineered endeavors fail to perform ( Mlay et al., 2013 ). Third, given the simultaneous implementation efforts and failures of business process reengineering, there is a need to test a good theory that adequately explains practice in dynamic situations (Whetten, 1989). Nevertheless, then study augments the field of management science by studying business process reengineering performance of MFIs using a theory of change from complexity science phenomenon.

Context of the study

In the developing world context, MFIs are innovatively playing an intermediating role of generating incomes and providing financial services to the poor. They bridge the gap that commercial banking has not been to ably fill by providing loans for the specific purposes of creating self-employment, thereby enabling the poor communities to build their own microenterprises and move themselves out of poverty ( Tawakol, 2015 ; Ledgerwood & Earne Nelson, 2013 ). The problem of implementing business process reengineering that can perform in the context of developing economies, such as Uganda’s economy, is not new. Accordingly, recent data in MFIs show that the business process reengineering failure rate continues to be high in the context of developing economies. The reality is that MFIs in developing economies, particularly in Uganda, are continuously making incremental and radical changes. The rationale behind such business process changes lies in the fact that operating and financing costs are persistently increasing, customer demands in local communities are complex and dynamic with increasingly stiff competition. Indeed, there is an acknowledgement that the regulatory authorities are forcing MFIs to adapt, transform business processes, and create flexible regulations and management policies to efficiently serve the poor. The evidence of business process reengineering phenomena exists in Uganda’s MFIs as shown by the Social performance report (2013) and AMFIU report (2015) . The social performance management was carried out to transform the poor communities as indicated by social performance measures such as: client protection, client satisfaction, outreach and social performance information. The overall improvement of the social performance score also reflects the growth and maturing of smaller financial intermediaries that are increasing their outreach, and better integrating systems and processes to manage their social mission. In this study, we attempt explain business process reengineering performance in MFIs of developing countries using evidence from institutional leadership and adaptability. The study utilizes constructs from complexity theory to explain the business process reengineering phenomenon in MFIs of a developing economy context like Uganda. This study further augments the works of Kurmet & Maaja (2008) , Taylor (2005) and Selznick(1957) , who assert that “institutional leadership creates institutional values of microfinance institutions in static situations yet institutional leaders keep on changing their strategies to meet the dynamic changes, external and internal forces of microfinance institutions, and other financial institutions”.

Literature review

There is a positive relationship between institutional leadership and business process reengineering performance.

There is a positive relationship between organizational adaptability and business process reengineering performance.

There is a positive relationship between institutional leadership and organizational adaptability.

Methodology

This study examined the ontological and epistemological perspectives of the constructs under study ( Marsh & Furlong, 2002 ). The truth about the knowledge of business process reengineering performance is that it is both objectively and subjectively studied. The theories used to conceptualize business process reengineering performance have constructs that are measured subjectively such as organizational adaptability and institutional leadership. The study was concerned with what constitutes valid knowledge and how we can obtain it ( Creswell, 2003 ). This study was guided by the review of complexity theory to explain the practice as far as business process reengineering performance is concerned. The theory was tested and improved based on quantitative and qualitative approaches and analysis of the results ( Punch, 2005 ).The critical realism paradigm was used in this study. This paradigm involved successive triangulation of quantitative data with a support of qualitative data to explain the perceptions of business process reengineering performance of MFIs. The questionnaire and appreciative inquiry research instruments that guided this study are presented in Appendices 2 and 3 , in the appendix section. These instruments were used to gather quantitative and qualitative data respectively as business process reengineering performance is real. It exists and is both structured and unstructured in a way that in Uganda, MFIs are practicing it and managers perceive differently. The structured reality of business process reengineering performance is observed in the reengineered MFIs and the unstructured reality is that it is obscured and managers attach different meanings to it.

Population, sample size, sampling design and procedure

The study targeted 95 MFIs operating in Uganda ( Association of Micro finance institutions (AMFIU), 2015 ).The focus was on reengineered business processes of MFIs, regulated or not. An approximate sample size of 77 institutions was computed by the formula n = (95)/(1 + 95(0.05) 2 ) = 76.77, used by Yamane (1973) , with 5 per cent level and with 95 per cent level of confidence using statistical power analysis ( Cohen, 1988 ). The method is preferred because it yields a fairly representative sample size which one would expect even if other popular approaches such as table of sample size determination by Burrell & Morgan (1979) . The snowball sampling technique was used to select the MFIs that practiced business process reengineering. The snow ball sampling technique was used as the sampling frame was not well defined and thus no single list for the known reengineered institutions was available to ensure the institutions to be randomly selected. The purposive sampling technique was used to select managers who had previous experience in business process reengineering practices. Data were collected and aggregated to the unit of analysis. The data was analyzed using a multiple robust computer software, such as smart partial least square (PLS), statistical package for the social sciences (SPSS) and Nvivo. The statistical package for the social sciences was used for preliminary analysis such as data management, confirmation of assumptions of parametric data and cluster analysis for data mining. Accordingly, quantitative data were analyzed using smart partial least squares while qualitative data was analyzed by using Nvivo.

Measurement and operationalization of the study variables

In this study, the measurement and operationalization of variables were made based on the research instruments used by previous scholars. We used a Likert scale questionnaire to gather the views and opinions on business process reengineering performance and its predictors. Business process reengineering was conceptualized as a process innovation, process redesign and process re-invention for performance improvement ( Chan et al., 1997 ). This conceptualization contradicts other scholars’ views. For example, Ahmed (1996) conceptualized business process reengineering as a process, radical change and socio-technical approach. Business process reengineering performance is operationally measured in terms of cost reduction, time reduction, output quality and quality of work life ( Muhammad et al., 2013 ; Grzegorz, 2014 ; Grover et al., 1995 ). Furthermore, Al-Mashari et al. (2001) asserts that business process reengineering performance is inherently subjective; the goals and targets set vary among organizations. In this study, business process reengineering performance is a multi-dimensional construct and requires in depth understanding from both qualitative and quantitative perspectives. According to Selznick, (1957) , the core elements of institutional leadership therefore include defining and embodying the mission and role of the organization; defending the integrity of the institutions; setting clear purpose and actions toward the set goals; and resolving conflicts both internally and externally while meeting the internal and external demands of the organization. Institutional leadership is inherently seen and dimensionally explained as coalition networking, maintenance leadership, resilient leadership, persuasive leadership and visionary leadership ( Choi et al., 2011 ; Selzinick, 1957 ; Terry, 1995 ; Selzinick, 1949 ). Therefore, institutional leadership is a multidimensional construct. On the other hand, organizational adaptability is studied as a multidimensional construct as indicated by Table AI in the appendix section.

Reliability test

Reliability measured the internal consistency of the indicators of the constructs in this study. We tested the reliability and validity to check whether the results are repeatable/replicable so as draw conclusions on the relevance and consistence the instruments used in data collection ( Saunders et al., 2006 ; Sekaran, 2000 ; Field, 2009 ). The results regarding reliability are illustrated in Figure A2 as presented in the appendix section. The recommended and acceptable cut-off of the reliable instrument was met as Cronbach’s alpha statistic was greater than 0.7, indicating that the instrument has internal consistence and thus giving consistent results ( Neuman, 2006 ; Nunnally, 1978 ).

Data management, parametric assumptions and analysis tools

The common method bias was handled using procedural remedies by avoiding “double-barrelled” questions; improving scale items by maintaining simplicity and ensuring the time lag of the administering questionnaire. The first part of the questionnaire (for the Independent Variables) and the second part (for the Dependent Variable) were administered three weeks after the research began ( Podsakoff, Mackenzie & Lee, 2003 ).The preliminary analysis was confined to coding, data cleaning and screening. The completed questionnaires were checked for missing values ( Little & Rubin, 1997 ). The inconsistencies of the responses given by the respondents using multiple imputation method were handled accordingly. The outliers were checked by using QQ-plots and PP-plots and were handled accordingly. Diagnostic tests were used to explore the assumptions of parametric data before subjecting the data to analysis using statistical inference. The parametric assumptions such as linearity, normality and homogeneity of variance were used to decide on the appropriateness of the statistical test; the data were subjected to the normality assumption test to explore whether the sample significantly differs from the normal. Data were transformed using log transformation as all the scores were higher than one and not equal to zero ( Field, 2009 ). More so, the reverse coding of questions was thoroughly checked for all the scores. The assumption of homogeneity of variance was explored using Levine’s test to ascertain whether the homogeneity of variance of the study variables is tenable. Linearity assumptions were carried out by exploring the nature of scatter plots of each variable. The diagnostic test results are summarized in the appendix as shown in Figures A4 and A5 and Tables AV - AVIII . In this study, we used the statistical package for the social sciences and smart partial least square software to analyze quantitative data. We further used Nvivo to analyze qualitative data. The latter was used to provide a deeper understanding and perceptions of the senior managers about business process reengineering in a third world setting.

Data mining results

Cluster analysis was performed to group cases into homogeneous clusters, thus reducing the complex patterns in the collected data. Cluster analysis was used as one of the data mining techniques that focus on data reduction to sort cases, observations, or variables of a given dataset into homogeneous groups that differ from each other. The cluster analysis method was chosen due to the complex patterns found in the data. The cluster analysis was carried out in this study to group cases into homogeneous clusters after subjecting the data to a diagnosis test. Considering the data revealed a degree of heterogeneity, there was a need to explore the nature of clustering based on the data obtained from the surveyed MFIs. Agglomerative hierarchical cluster analysis was used to separate each case into its own individual cluster in the first step so that the initial number of clusters equals the total number of cases. At successive steps, similar clustered cases were merged together until every case was grouped into one single cluster. The coefficients at each stage represent the distance of the two clusters being combined as shown in Figure A1 in the appendix section. The agglomeration schedule listed all of the stages in which the clusters are combined until there was only one cluster remaining after the last stage. The number of stages in the agglomeration schedule was one less than the number of cases in the data being clustered. Cases with low agglomeration coefficients were considered for homogeneity reasons to avoid complexity of data. The results revealed a homogeneous pattern of cases, except the cases that scored agglomeration schedule coefficients higher than 1.942.The behavior of clustering is inherently explained by the differently processes reengineered by MFIs and the fact that the surveyed institutions operate at different levels in a competitive environment.

Analysis and results

Data for the re-useable questionnaires were analyzed to generate the descriptive characteristics of the sample for both the unit of analysis and unit of inquiry. The results presented in the appendix section, Table AII , indicate the demographic profiles of the institutional respondents with 47 observations based on aggregated data from MFIs. While Table AIII in the appendix section indicates the demographic profile of individual respondents with 82 observations based the respondents. The descriptive statistics provide a general overview of the demographic profile of the individual and institutional respondents. The results that indicate the sample characteristics of the respondents are analyzed using frequencies; the results reveal that most of the respondents were master’s degree graduates (50 per cent). The results further indicate that most of them had reengineering experience of five years and less (42.7 per cent) and were relationship managers (34.1 per cent). The results revealed that most MFIs that reengineered business processes had concentrated on financial processes and redesign of workflow processes to ensure process efficiency (44.7 and 25.5 per cent, respectively). The reengineered institutions have been mostly in existence for a period between 16 and 25 years (46.8 per cent), followed by a period of 6-15 years (11 per cent).

Structural equation model results

Smart partial least squares was used to generate results for the predictive modeling of the study variables using R 2 . The model results presented in Table I were used to test the study hypotheses.

The path coefficients are standardized beta coefficients that test whether the proposed hypotheses are supported or not as shown by Table I . The results are additionally presented in Figure A2 in the appendix section.

The results further indicate that both institutional leadership and organizational adaptability contribute approximately 61 per cent on business process reengineering performance. The H1 is supported: There is a positive correlation between institutional leadership and reengineering performance (B = 0.786, p < 0.05):

[…] revealed that top leaders formulate goals, long term plans, vision and sense of purpose with particular attention to process efficiency of structural designs and customized processes of the departments […] (Interviewee 6).

We appreciate the new leadership that improved timely service delivery, reliable services with minimum risks […] (Interviewee 9).

A number processes such as accounts payable processes have changed from manual documentation systems to electronic networked computers and automated teller systems […] new core processes, inter switching systems, mobile and online banking technologies have enhanced process efficiency […]. organizational culture keeps on changing to have sustainable businesses and competitiveness […] (Interviewee 4).

H2 is not supported: There is a significant negative relationship between organizational adaptability and reengineering performance (B = −0.010, p > 0.05). The evidence that supports such qualitative result was given by one of the interviewees:

[…] We often make decisions to upgrade the systems but process inefficiencies persist. We have even closed some of our branches because of increasing dormant accounts, non-performing loans, sudden fraud and losses […] we often solve workflow problems by creating many serving points but, our clients keep on complaining about delays […] (Interviewee 7)

Our challenge is to think from scratch and create new insurance services that meet the ever-changing needs of our clients […] (Interviewee 9)

The cost of credit and non-performing loans ever increasing despite the continuous change management decisions […] (Interviewee 5)

Furthermore, H3 is supported: There is a positive relationship between institutional leadership and organizational adaptability (B = 0.806, p < 0.05).This implies that it is not a matter of adjusting to the environment, but the way reengineered processes are managed. This implies that there isa need to carry out business process management practices to capture behavioral aspects of managers while managing the process change:

[…] Staff with innovative ideas always responds to the needs of external and internal customers. A good leader uses the life stories to stabilize and influence others towards the set vision […] We have been protecting our core values, beliefs and creating corporate vision, hope, optimism in brochures and manuals for prompt responsiveness and survival reasons. (Interviewee 11)

“[…] Staff with innovative ideas and persuasiveness always respond to the needs of external and internal customers […] We institutionalized social performance management systems, strategic partnerships, and involved top management to extend social goals to community and serve clients better […] (Interviewee 10)

The quantitative results were supported by the qualitative findings as discussed in the next section.

Qualitative results

Qualitative data explores the indepth understanding of the concept understudy ( Yin, 2008 ; Morgan and Smircich, 1980 ). The justification of qualitative results is to support the quantitative views about business process reengineering performance. The truth about the knowledge of business process reengineering performance is that it is both objectively and subjectively studied. The quantitative results were used to test the hypotheses with the objective reality of business process reengineering phenomenon. The qualitative results clearly articulate different meanings attached to business process reengineering performance in the context of Uganda’s MFIs. More so, triangulating qualitative data with quantitative data to strengthen the complexity theory that considers the dynamic nature of business process performance, especially in Uganda’s financial sector where business processes are ever changing. The qualitative approach was carried out according to guidelines highlighted by Yin (2008) and CAPAM (2010 ; 2016) to provide exploratory and explanatory reasons for the business process reengineering performance phenomenon in the context of developing economies. We interviewed senior managers to get the feel of perceptions of business process reengineering performance as the central basis of our study. After reaching the saturation point with 11 interviewees as the maximum number of interviewees, the data were entered in Nvivo software for analysis. The results revealed different meanings attached to business process reengineering performance as shown in the appendix section, Figure A3 . The qualitative results reveal the perceptions of business process reengineering performance in terms of; improved information sharing, improved process technologies, responsiveness to customers, providing solutions with reduced costs and risks, aligned processes, timely feedback and service delivery, achieving targets as per objectives, new process networks, improved service value, improved centralized teams, reduced bureaucracies, reliable service offered, adding new product features and innovative services.

Discussion of results

H1 was supported implying a significant positive correlation between institutional leadership and business process reengineering performance. In the context of MFIs, managers who possess institutional leadership in terms of coalition networks, the more the chances they innovate the business processes and inherently deliver services efficiently and effectively to the clients and internal staff. Furthermore, visionary ideas are developed, and high performing institutional structures are maintained to ensure well-defined and efficient work activities. Furthermore, visionary ideas are developed; the high performing institutional structures are maintained to ensure a well-defined and efficient work activity. Most of the MFIs have new offices with professionals dealing with various issues of creating an institutional leadership that ensures capital adequacy as one of the specificities to avoid solvency problems. This is because MFIs’ portfolios tend to be more volatile than those of commercial banks. In the event of non-repayment, when they arise, they tend to be more risky than in a commercial bank and so operational risks in MFIs tend to be high as well. More so, as leaders develop a coordinative mechanism of processes, monitoring and evaluation becomes simplified; quality interactions are amplified leading improved performance and competitive advantage ( Kinicki et al., 2013 ; Magutu et al., 2010 ). The results are supported by the works of Selznick (1957) that emphasized that institutional leaders are key drivers of institutional integrity and operational performance. Business process reengineering performance is predicted by a composite of institutional leadership indicators such as through coalition networking, visionary, maintenance and coordinative leadership. Therefore, although this study is not at variance with previous conceptual studies of business process reengineering performance, the present study supports the contention that institutional leadership indicators are the key drivers of business process reengineering performance metrics which include; quality interactions, timely delivery of services and cost reduction( Mile et al., 2002 ). Microfinance institutional leadership develops absorptive and innovative capabilities to ensure information flow and adaptive mechanisms to dynamic changes to enjoy competitive advantage. This stream of knowledge is in agreement with the complexity theory ( Goldstein, 1997 ; McMillan, 2008 ; Greifener et al., 2010 ).

H2 was tested and not supported: There is an insignificant negative relationship between organizational adaptability and business process reengineering performance (B = −0.010, p > 0.05). Therefore, this study is at variance with previous studies of business process reengineering such as those that suggest the existence of a direct relationship between adaptability and business process innovation ( Chhetria et al., 2012 ). Microfinance services operate as self-organizing systems and as such MFIs adapt to environmental changes so as to benefit from important customer and market segments, reduced costs and quality products for competitiveness and survival reasons. According to Klein, (1994 ), 88 per cent of the executives were reengineering but half could not define the scope of business process reengineering. As such, the results of this study pay more attention to the relationship between organizational adaptability and business process reengineering performance without understanding the way the processes will be managed after the change. The results are evident that organizational adaptability stimulates business process reengineering performance through cultural changes, narrowing market forces, management systems and structural adjustments ( Gudmundur & Thorhallur, 2013 ). However, the more institutions change their core processes without clear modeling techniques the more they fail to perform ( Guimaraes & Owen Chair, 1998 ; Gunasekaran & Kobu, 2002 ). This is because they need to understand and adapt to complex patterns, change from old structures to new structures and management systems to create value in MFIs ( Boylan & Turner, 2017 ). Furthermore, creating adaptive MFIs may not necessarily create positive impact on business processes that meet the dynamic customer demands. This means that as MFIs adjust their structures and systems, they should pay attention to the standard prudential regulations that typically limit unsecured loans to some percentage of a bank’s equity base. When such rules are adapted to microcredit portfolios, they automatically improve the efficiency of the process of MFIs in developing economies.

Further H3 is supported: There is a positive relationship between institutional leadership and organizational adaptability (B = 0.806, p < 0.05). Due to dynamic demand and competition, business leaders keep on implementing business process reengineering to improve performance metrics. The challenge failed to have a successful implementation, which is related to: management support, technological competence, process delineation, strategic planning, change management and project management ( Shanoy, 2016 ; Hammer, 2010 ). However, the complexity theory ( Anderson, 1999 : Goldstein, 1997 ; McMillan, 2008 ) explains that the ability of institutional leaders to develop a more structural and systematic workflow process is driven by the systemic possession of technological capabilities and process innovations in the complex nature of stiff competition. More so, institutional leadership creates an environment that implements policies that meet quality sanctions and corrective actions in twofold aspects. First, they deter MFIs from contravening regulatory requirements; second, they help to cure the problem created by the violation of regulations. Furthermore, leaders stipulate the maximum percentage of capital that can be held by a single owner to prevent a concentration of ownership, which could enable a single owner to take independent selfish policy decisions such as insider trading and marketing actions. More so, the specificity of MFIs to lower the amount of currency that investors can bring to the equity base of a financial institution seeking a banking license is critical.

Thus, MFIs need to be infused with values and understand the behaviors and characteristics of those who lead institutions to adjust to external changes create and maintain the structures and the systems that are able to sustain the institutional character and values ( Lawrence & Suddaby, 2006 ).

Conclusion and implications

First, the formation of homogeneous clusters was generated from the cluster analysis as a data mining approach. The findings indicate that the reengineered business processes are homogeneous and belong to the same class of MFIs. Managers need to pay attention to the nature of the processes to be reengineered. Results from qualitative analysis further reveal that business process reengineering performance is perceived differently. We conclude that whereas previous scholars have focused on business process reengineering performance measures, such as efficiency and effectiveness in developing economies, this study has provided theoretical explanation of business process reengineering performance of MFIs in Uganda’s context ( Sungau, Ndunguru & Kimeme, 2013 ; Eke & Achilike, 2014 ). The qualitative data, from such developing world setting, provides a supporting augment to deeper the understanding of the concept. Second, given the results from the structural equations generated herein, managers need to consider institutional leadership and organizational adaptability as key drivers of business process reengineering performance in MFIs. The results confirm the presence of the significant role of institutional leadership and organizational adaptability in improving business process reengineering performance outcomes such as; reduced costs, maximum service delivery and processing time. There is a need to instill institutional leaders who eagerly protect and promote institutional values during institutionalization processes through normative and mimetic socialization, persuasion and coercion to stimulate changes in core processes ( Selznick, 1984 ; Kwangho & Jongwon, 2011 ). Besides, leaders need to be committed to values and the mission thus managing the internal consistence, developing external supporting mechanisms to enhance institutional legitimacy and overcoming external competitors to protect and maintain the institutional integrity and survival through vision setting, storytelling, and network brokering to defend the institutional values and business process performance practices of the MFIs ( Washington, 2004 ). Third, theoretically speaking, this study contributes to the existing frameworks of complexity science and management science models. Complexity theory has emerged as tested theory of change that explains business process reengineering performance of MFIs in the context of developing economies. This implies that decision makers of MFIs need to come up with theoretical-based policies, such as business process reengineering policies based on the tested theory. Managers need to equip themselves with absorptive and innovative capabilities to adapt to external concerns ( Nariman et al., 2011 ). We, therefore, affirm that business process reengineering performance is a complex phenomenon that needs to be viewed using a complex paradigm. Fourthly, the study adds a variation to the methodological perspective with mixed methods that capture both qualitative and quantitative data and aspects of business process complexities, since previous studies focused on linear assumptions and mathematical modeling of business process reengineering in the developed world context.

Limitations of the study

Despite the contributions and implications of the study, this study was constrained by a few limitations; some measurement items were adapted from literature focused on the developed world context. More so, the limitations of the study were overcame by reframing, contextualizing and pre-testing the research instruments such as both the questionnaire and interview guide. The study further used literature from both developed and developing world contexts to reduce the errors. The cross-sectional research design ignored the change in time and self-reporting mechanism was another limitation of the study. However, this was overcame by the successive triangulation of quantitative data followed by qualitative data as per MFI as the unit of analysis and key informant as the unit of inquiry.

Cluster results

Structural predictive model of business process reengineering performance

Perceptions of Business process reengineering performance

Linearity of institutional leadership

Linearity of organizational adaptability

Structural predictive model

Operationalization and measurement of study variables

Reliability results

Table AIII.

Sample characteristics of MFIs

Sample characteristics of individual respondents

Test of normality: Kolomogorov–Smirnov and Shapiro–Wilk

Normality test after data transformation

Table AVII.

Homogeneity of variance

Table AVIII.

Mulitcollinearity results-dependent variable: business process reengineering performance

Table AVIII

Appendix 2. Self-administered questionnaire

Appendix 3. appreciative inquiry.

Dear participant ,

This interview is aimed to generate qualitative data. You are requested to spare at least 20 minutes to voluntarily respond to this interview guide. The study seeks to capture deeper understanding of perceptions relating to business process reengineering performance of Microfinance institutions. Your timely responses will be given utmost confidentiality.

A (1): Your institution is regularly making incremental and radical changes to create customer oriented service. Describe a situation when your institution experienced unnecessary, ineffective and inefficient processes […].which core processes were affected […] how did such issues get solved […] What was the outcome?

A (2): Probe: To your institution, what is business process reengineering performance? What incremental and radical initiatives are taking place in your institution? […].What is your experience from such initiatives?

Thank you very much for your kind cooperation.

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The Essence Of Business Process Reengineering As An Effective Management Method

The reengineering approach helps create a system of effective flexible company management in a changing innovative growth economy. The reengineering concept, formulated and introduced into management practice in the early 1990s, was positioned as a management business strategy, an alternative to the classical management paradigm of A. Smith. The desired method of effective enterprise management should take into account the economic, organizational and social constraints. Management proceeds from the need for optimal use of resources at the organization’s disposal. Value is created and realized by people who are able to identify new customer needs or open new paths for market development. This often requires innovative approaches and faces resistance from workers. In the face of change, they are worried about maintaining guarantees of labor remuneration and other types of social protection, and it is the team that creates a product which ensures competitive advantages of the business. The solution to the problem should satisfy all interested parties. The objective of improving the efficiency of enterprise management may be achieved through the use of the business reengineering method. Keywords: Reengineering company management; effectiveness business processes innovation

Introduction

An enterprise is a complexly organized system of relations that carries out its own development cycle as a result of complex interaction with other micro- and macro-level economic systems. Technological progress and globalization processes increase the strength of this mutual influence, the contradictions growth rate, and today, when the crisis has embraced the economic, political and social aspects of human activity on a planetary scale, and the risks of business insolvency are increasing, the need of managers for effective ways and methods of managing changes in the face of changes is especially relevant ( Kunde, 2000 ).

In addition, shareholders and investors are interested in effective management, which helps the company gain a leading position in the market, increase cash income and profit margins.

Problem Statement

Reengineering as a method of redesigning business processes was popular in the US business world and positioned as revolutionary: the practice of successful implementation showed an improvement in performance by tens and hundreds of times ( Hammer, 1990 ; Hammer & Champy, 1993 ). However, such results were rarely achieved, and over 50% of reengineering projects were completed due to a lack of results. Similar results were obtained in our country. Disruption of expectations was expressed in critical articles by foreign and domestic authors supporting less radical approaches and minimizing risks, especially in times of crisis. But while it may be enough to maintain efficiency with relatively stable operation of the reforms, the crisis conditions set special requirements for the methods and scale of the required transformations ( Gildingersh, 2016 ). It is important for us to clarify what made the method so effective that the reengineering theory is included in the training of economists in the world and in our country, and why it has become a source of frustration and criticism for others.

Typically, understanding of what to do comes from a general assessment of the situation. Today it is characterized by inconstancy and unpredictability of demand, competition and changes, as well as the impossibility of extensive development. Similar products and services compete in standards, price, choice, quality, service before, during and after the sale. This increases the risk of losing customers, each of whom knows what he wants, at what price and on what conditions. The dynamics of any changes is accelerating. Managers understand that business must be equally flexible and dynamic, offering new products, services and the highest quality service at a competitive price. But in practice, it is impossible to overcome a number of reasons for the total inefficiency: lack of attention to customers, bureaucratic delays, lagging behind the dynamics of changes in external conditions, immunity, disunity, concentration on personal work to the detriment of overall results, significant production costs and lack of innovation. The problem of inevitability of even obvious reasons is that the company does not change the behaviour model, therefore improvements do not occur ( Bandler & Grinder, 1979 ).

Research Questions

A halt in development and deterioration of indicators to varying degrees is evidence of a critical mismatch between the system and the environment and requires reengineering, which financially prosperous companies can resort to if they are focused on gaining leading positions in their market sector.

The essence of reengineering is innovation, i.e. abandoning customary ideas and rules and starting a fundamentally new type of thinking and behaviour ( Davenport, 1993 ; Davenport & Short, 1990 ):

Setting high goals, which require transition to critical rethinking of what exists and determination to rebuild structures and procedures if necessary (after reengineering the business process, it becomes clear what the structure and personnel should be like).

Focus on the process should identify and organize the key flows of the main activity around which business development will be going on, creating a valuable result for the client. In this case, the customer may be the buyer, contractor or unit of the company.

Violation of rules, traditions, structures and standards is encouraged if they conflict with the understanding of what and how should be done on the basis of today's situation.

Creative use of computer technology in the creation of new models of information flows and the business process itself ( Alexankov et al., 2017 ).

As a result, reengineering allows for less resources to achieve radical improvements. Consider why and how this happens.

Research Methods

Since the main goal of reengineering is to ensure stability and prosperity of the entire company, it is important to convey this idea to employees in order to reduce resistance to change ( Csikszentmihalyi, 1990 ). It may be useful to change the organizational structure and the system of relations between departments, and also implement changes in the personnel sphere. In the transition from traditional methods of work, the most difficult thing is to create new value for the client inside and outside the company using modern technologies. To make the unthinkable a reality, you need to destroy the usual ideas and create a new process structure where multifunctional groups can fully satisfy the needs within the organization and the needs of customers (price, service, speed, assortment, reliability, etc.). The system of remuneration and career advancement of employees should be brought into line with the goals of reengineering. And the leader must become the leader of change.

Thus, reengineering is relevant for those who are in a crisis of efficiency and/or are actively seeking leadership. Also, it changes the idea of the role of each person in economic relations ( Ababkova et al., 2018 ).

The old model of economics considers a person only as lab or force. But human behaviour is determined by the presence of one's own will, the ability to interpret phenomena through the prism of one’s own consciousness, and not only be a participant in events but also actively shape them. When creating plans to meet his needs, a person takes into account external conditions (favourable or limiting ones), and also what other people plan and desire. The resulting difference between the desired (“I want to do”) and necessary (“I have to do”) behaviour creates another external condition in addition to environmental circumstances.

This double conditionality significantly increases the unpredictability of human behaviour and the development of business systems, and change management is impossible without understanding the individual psychological characteristics and laws of personality formation. For example, the classical model of the economy has signs of anal-narcissistic narcissism ( Freud, 1990 ) whose destructive features are possible but difficult to fix: The power of the “ego”. Focus on "special rights". Demonstration of grandeur. Overvaluation of money. Expansion. Control. High level of aggression. Ignoring ethics and morals: “nothing personal, only business”, “thanks do not fill a purse,” “money does not stink!”

Reengineering destroys artificial limitations and, creating unity and integrity of business processes, returns meaning to the person’s activity, increases his satisfaction from joint achievements and personal growth. The bar for workers and candidates rises, and only qualified positions remain in the company's organizational structure. The delegation of authority and responsibility requires the ability to make independent decisions in the context of continuous changes and organize activities within their obligations to the company, and a person will need ongoing education for this. Thus, the complexity and energy intensity of work on the principles of reengineering increases and creates favourable conditions for the development of each person.

Payment of remuneration to the employee is brought into line with his effectiveness, and since it is not constant, the salary is made up of a constant part adjusted for inflation and a bonus for special achievements. Career advancement is associated only with abilities: a good professional is not necessarily a good leader. But such a distinction of concepts sets the potential for growth and stimulates the development of even professionals.

Reengineering will reorient the company's activities from manager to client: remuneration is paid by a satisfied customer. This value forms the general interest of employees in the outstanding result. Quantitative and qualitative criteria for evaluating the effectiveness, abilities and principles of payment for a personal contribution to creating value for a client are being formed naturally.

The customer-responsive environment is reinforced by the management system and the real actions of the leader. If the leader cultivates his power, experience and devalues the importance of cooperation, the creation of competitive value will not take place. Phrases like “these are your problems” (addressed to the employee and/or client) will show not the declared but actual characteristics of the personality and philosophy of the leader, which will guide the employees (Figure 2 ).

Reengineering turns a supervising head into a coach: he does not participate in business processes, but he is close by in order to help an employee or team to complete their work in case of difficulties ( Gildingersh & Gornykh, 2016 ).

Tasks are distributed among team members and controlled without the participation of a coach. And the head solves problems that affect the efficiency of the overall process:

providing conditions for development and formation of skills of independence among employees;

counselling;

formation of a long-term career development program for staff.

Coach is a new leadership profession related to the art of management. Only mature people with creative and analytical thinking, good interpersonal skills, able to be proud of another person's achievements, can be such leaders.

After reengineering, the organizational structure becomes flat and, as such, is no longer important because people are doing the same job together. Horizontal ties are developing between employees interested in the best overall result. Each of the employees is responsible for the full production cycle of value for customers within the company, including managers who are responsible for the full cycle of communication with external customers. The ratio of managers to employees in the hierarchical structure is 1: 7, and in the horizontal one, where the manager acts as a mentor, 1:30.

Thus, the innovation of reengineering covers all elements of the business system (Figure 03 ):

Goals that determine the scale of changes

Technologies used to achieve new goals

Rules updated following changes in external conditions

Processes creating value for the customer

Employees contributing to customer value

Mentoring management

Quality of work evaluated by the client

Capacity building education

Scope of decisions made independently

Performance fee remuneration

Career-matching ability

Culture that reinforces the value of cooperation

Radical reengineering transformations are expressed by a spasmodic improvement in performance indicators due to such a redesign of business processes in which unproductive labour costs are reduced and competitive value is created for the client, providing the enterprise with increasing demand and income. By the nature and characteristics, reengineering is in strict accordance with the requirements that the crisis sets to the business and contributes to the enterprise transition to a new level of development. Therefore, reengineering can be recommended as an effective strategy for enterprises in times of crisis or for enterprises claiming to gain key competencies and a leading position in their area of specialization.

The main driving force of reengineering is a business strategy that regulates the changes in the organization (hierarchy levels, units and work flows between them), technological (information technology as a catalyst for new forms of association, interaction and other forms of communication), human (education, training, motivation and incentive system) aspects of management ( Gildingersh et al., 2018 ).

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Gildingersh, M. G., Martynova, J. A., & Sirotkin, V. B. (2020). The Essence Of Business Process Reengineering As An Effective Management Method. In I. V. Kovalev, A. A. Voroshilova, G. Herwig, U. Umbetov, A. S. Budagov, & Y. Y. Bocharova (Eds.), Economic and Social Trends for Sustainability of Modern Society (ICEST 2020), vol 90. European Proceedings of Social and Behavioural Sciences (pp. 647-654). European Publisher. https://doi.org/10.15405/epsbs.2020.10.03.75

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