Productivity and Performance Effects of Business Process Reengineering: A Firm-Level Analysis

Abstract

We empirically investigate whether business process reengineering (BPR), which requires substantial investment in information technology to integrate separate tasks into complete cross-functional processes, is associated with enhanced firm productivity and performance. We analyze firm-level panel data covering the period 1987-2008 using fixed effects and first differencing, standard methods that account for unobservable firm-level effects. We find that return on assets drops significantly during the project initiation year. According to fixed effects results, the performance and productivity measures improve in a decreasing manner after project initiation, suggesting that BPR indeed positively affects firm performance on average. We also find that enterprise-wide BPR projects are associated with more negative returns during project initiation than functionally focused projects. However, there is no clear evidence regarding their superiority over functionally focused BPR projects in terms of performance improvements after project initiation, perhaps because grand projects are risky and sometimes lead to grand failures.

Keywords:

• business process reengineering
• business value of information technology
• panel regression
• productivity