We usually name business re-engineering to the redesign of business process and the design of other new ones. Re-engineering is a very complex process because it is the way that you modify the function of different parts of an organization. The term related to engineering is properly because you are trying to combine different parts of a system (and some new ones if necessary) in order to build a new different one.
Following this definition innovation is always a matter of re-engineering. Actual businesses are always in fact in a constant process of re-engineering. If the senior management is not rethinking its business, there must be something working bad at that business. From a more strategic viewpoint we can see re-engineering as the tactical support of the strategic thinking. Strategy defines some positioning to be reached, and through re-engineering we can modify the business to reach that positioning if it is not possible with the current possible business configuration.
This last sentence could seem odd for the inexpert managers. What does business configuration mean? This is easy to understand. For instance, a business could not export goods and services to other countries if there is not an international business department. However, you can assign this task to a certain sales department. In this case, you have assigned a new task to an existing agent of the system without modifying its structure (the total agents of the system and how they are interconnected). Re-engineering is much more than this. Through re-engineering we are changing the structure of the business. For the previous example, imagine that there are not people with English a second language among the people of the sales staff. In this case, you will need more than a simple task assignment in order to export goods and services to the US. The development of the strategy would require additional people with additional competences in order to reach the new positioning defined in the strategy. You will need additional agents and to establish new relationships with the pre-existent ones in order to reach the desired positioning.
If we move from exportation to innovation, things can be much harder. A new product based on new technology will require a strong modification of the structure of the business. It is common that a sharp innovation produces a change of the full productive process, the marketing process, the sales process and even the financial process. The structure of the business will be totally affected by the innovation process. Innovation usually requires new functionality and new functionality implies a more complex business. Innovation is not only the result to put some engineers to think about some improvement of the products. Innovation is the result of a great effort of business re-engineering when we are looking at it with a market viewpoint.
Why do we use the term business re-engineering instead of business engineering? The reason is very simple. Organizations have a maximum increase of complexity that they can endure. If we make some kind of innovation, we must readapt the business in order that complexity is in a safety state. The more complex the business is, the more difficult the managing of it is. We will be able to manage the business only if we eliminate some functionality that is not required yet. We will need a subsequent process of rationalization in order that complexity is reduced.
As we could see, although the strategy can be a matter of great numbers and knowledge about markets, any tactical chosen selection to reach a different positioning is usually supported by re-engineering. A good strategy is useless without a proper tactics. There can be multiple tactics in order to comply with a certain strategy; however, some of them could drive towards a more manageable business than other ones. This can be measured through complexity analysis. Complexity management is the control mechanism of any business re-engineering and any tactical development. Previously to complexity management science, the rationalization was done in a way similar to the artisan. The results will depend strongly on the experience of the managers. However, there are new ways to do this by expert managers nowadays combining expertise with knowledge provided by science. In the same way as the industrial productive process has moved from the artisan to the engineer, tactical management of the strategy has moved from the artisan to the engineer in order to increase its performance, and the subsequent rationalization can abandon the artisan way.
I would like to point out the difference between business reconfiguration and business re-engineering that is a wider concept. All managers would like to be able to adapt the business through reconfiguration, namely, assigning different tasks to the same agents. This can be done in many cases if the structure of the business was designed to do it, or in other words, if the business is flexible enough. However, this is not economically possible. For instance, most businesses cannot have the best managers and workers knowing many languages and having the expertise in many technologies and industries due to the prohibitive cost. And in the case of innovation, how many people can have knowledge about a novel technology out of the scientific world?
Although Human Resources managers usually like to have a staff with a lot of competences, this cannot be funded by most businesses. If reconfiguration cannot be possible from the human perspective, the physical restrictions of productive machinery and other infrastructure makes the business reconfiguration very difficult. However, this is not a great problem. The life cycle of a product is usually long, and the life cycle a technology is usually longer. Then a company can fit a new strategy through re-engineering if this process can be done in a lower time. The new challenge arises now, when the life time of many technologies in many current markets (for instance IT) is doing shorter every time. The process of re-engineering requires a shorter time and more flexible business structures now, and complexity management is gaining value day by day.