UK: FADS, FIXES AND FICTIONS - RE-ENGINEERING. - John Thackray is a business journalist living in New York.

Last Updated: 31 Aug 2010

John Thackray is a business journalist living in New York.

Re-engineering is top of the US management theory pops. John Thackray askes the gurus why it's such a hit.

Although American management no longer holds the exalted position it once did in the eyes of the world, there remains an intellectual ferment on the other side of the Atlantic which no other nation comes close to. The variety of concepts, and prescriptive models ('paradigms', to use managerial hip), the profusion of gurus hawking them and, above all, the willingness of executives to seek and try out novel approaches, buzzwords and theories are unmatched by any other nation.

Before describing the hottest ideas on the US business scene, here is a summary of the problems in industry that the concepts try to tackle. First, that old perennial, the frantic pace of change - in technology, geopolitics and markets. Second, the failure of older ideas to take us to the promised land - such as the widespread disenchantment with the once beloved Total Quality Management (TQM), benchmarking and Materials Requirement Planning (MRP). Most of these theories have not failed due to an inherent flaw in the actual idea but simply because of shortcomings of implementation. Third, the failure of computerised information systems to deliver lower costs and higher productivity, even after three decades of trying. Fourth, the need to make leviathan companies less muscle-bound. Fifth, the fact that a decade of mass downsizing and restructuring has failed to significantly improve the competitiveness of most corporations.

Top of the pops for solving these issues is 're-engineering'. One of its synonyms is the equally inelegant 'core process redesign'. Paul Kaestle of the Caanan Group explains its appeal. 'There is a growing recognition of the importance of process. Many companies have figured out that process is the core of how they work, and the core isn't very good. Process is the hot ticket.'

This idea - or cluster of ideas - took wing from an article by Michael Hammer in the July/August 1990 issue of the Harvard Business Review. Entitled Re-engineering Work: Don't Automate, Obliterate, it called for drastic reconceptualising and reconfiguration of the big corporation. He believes that it can only be made successful by a radical remaking of information systems and ways of working and communicating, both internally and with customers. 'It's an all-or-nothing proposition with an uncertain result. But re-engineering isour only hope for breaking away from the antiquated processes thatthreaten to drag many companies down,' he wrote. When I spoke to him,this one-time computer science professor sounded like a Maoist in a grey flannel suit. 'CEOs are realising that they have to lead the revolution against themselves,' he said. 'The system of which they are a product is doomed. Either they go down, or they invent something new.'

Hammer's message spread like wildfire. The author remained modest: 'It was not something I invented,' he claims. He 'merely articulated and systematised' what a few pioneer corporations had practised and some consultants had urged on their clients. William Stoddard, a managing partner at Andersen Consulting, was nevertheless impressed. 'God Bless Mike Hammer - because he really popularised and legitimised the concept. After his article, we saw a ramping up of demand.' Indeed, he says that his company now reaps an astonishing $700 million income worldwide as a result of applying these theories.

'Our view is that re-engineering has to embrace aspects of strategy, people and processes in a holistic way,' he says.

Today re-engineering is so much a part of executive parlance that Dun and Bradstreet Software has brought out a do-it-yourself re-engineering programme for those who can't afford a consultant at $3,000 per day. Where re-engineering catches on it grows like topsy. Corporate giants who have adopted the concept might undertake 30 to 50 re-engineering projects at any one time.

Tom Peters who, a decade ago, co-wrote the best-selling business book In Search of Excellence, is another management guru who argues the case for re-engineering. Like Hammer, he is a tough critic of the hierarchic corporation and the way in which it is divided up into traditional functions, such as manufacturing, marketing and finance. 'My hypothesis is that we have spent most of the last 20 years misapplying modern information technology to very unmodern corporations,' he has stated. His prescription: remake the whole corporate infrastructure, especially information systems, so that they support decentralised power and close interaction with customers. 'Sad to say information technology barons have been the worst at hoarding information, accumulating power and trying to keep others from having a finger in the pie,' Peters says.

Re-enginering's risk is not just a possibility. It is a fact. 'We have watched a number of re-engineering projects fail,' says David Nadler, president of the Delta Consulting Group. 'They have involved huge promises of savings, but have either been stopped because they don't seem to be leading anywhere, or they have been completed but with none of the promised gains to show for it. More-over, such projects generate payments to consultants of upward of $5 to $20 million. It's a nasty little secret.'

Maybe so. But there are CEOs so captivated by the concept they are even willing to overlook failure. An-dersen Consulting's Stoddard has been approached by a senior executive who has put his company through three failed re-engineerings and wants to try another. 'It can often be a bet-the-business proposition,' says McKinsey and Co partner John Hagel. Critical business activities are involved, so if a mistake is made it could have a disastrous effect on economic performance and customer perception of the company.

Hagel offers the following explanation for the most common causes of re-engineering casualties: failure to understand the processes that are being demolished before the re-engineering is implemented; attacking too many processes - there are usually only about five or six that are truly significant (just speeding up a process, or re-engineering it without connecting it to strategy, yields very smallreturns); exclusion of some parts of the corporation from any impact or consequences - ie, sacred cows; and excessive speed - most successful re-engineering programmes take three to four years. A recent poll carried out by the Gateway management consulting group illustrated why flops are ubiquitous: 60% of the 121 senior managers contacted expect to see positive results from re-engineering in a year or less.

If Hammer had appeared on the scene 10 or 15 years ago, most corporations would never have let this messiah near the executive suite. His critique would have been too much of a threat to the status quo and his remedies not easy to implement. Today, on the other hand, CEOs are eager to hear his theory that, 'Organisations can com-bine the economies of scale and the financial stability of large organisations with the flexibility and speed of small ones' - so long as they are prepared to re-invent themselves from scratch.

As with many modish management concepts, there is an element of deja vu beneath the terminology. 'The components of re-engineering have a much longer his-tory than its current hoopla might imply,' writes Darrell Rigby, director at management consultants Bain and Co, in the March/April 1993 issue of Planning Review. 'Process design and the study of work can be traced back to the days of Frederick Taylor (the father of time and motion study). The organisational structure ideas go back to Henri Fayol, Alfred P Sloan Jr and Peter Drucker.

'Ask any well-established consulting firm how long it has been practising re-engineering and most will tell you that it has always been an important part of their product line.' Its antecedents and precursors include: bread-and-butter reorganisation studies, overhead value analysis (OVA) and activity value analysis (AVA), as well as work flow studies. As one consultant said: 'If our clients are comfortable calling it re-engineering, that's fine. Most of what we do can be tucked under that title.' If Hammer's idea can be readily marketed, it is partly because of the responsive chord it has struck among corporate brass. A handful of companies have adopted his message enthusiastically, among them GTE Telephone, Taco Bell, Aetna Life and Casualty, Texas Instruments, Hallmark Cards, American Express, Bell Atlantic and, in more limited ways, Kodak and Ford Motor. Some of their stories are included in Hammer's book Re-engineering the Corporation: A Manifesto for Business Revolution, co-written with James Champy, chairman of CSC Index. It is due to be published in the UK this month by Nicholas Brealey.

A major part of Hammer's territory was first explored a few years earlier by George Stalk, vice president of the Boston Consulting Group and father of 'time-based competition', also sometimes called 'time-compression management'. Stalk introduced this measurement to makeoperational assessment and comparison with com-petitors possible overa wide range of activities - from new product design to the handling of customer complaints. Stalk pushed clients to analyse cycle times for different key processes and then to 'look for where we are deficient and whether that deficiency means something. And if it turns out we are at parity with the competition, can we be superior? If so, what kind of value does that create for the customer? And then as we create that value, how do we defend it. In the end we don't ask people to work faster. We try to get them to stop wasting time. On most processes we find that 95% of the time is wasted. So there's a great opportunity to open up re-engineering programmes.' Re-engineering is not exactly a tool box, more of a direction, a cause, a faith in the possibilities of top-down revolutions. What it needs is the 'power to effect trans-formational change and do it fast and focused,' says Champy. He believes some US companies are victims of the self-improvement 'programme of the month' mentality, and of managers who do quality and fail to realise that 'it is a state of being'. 'When you have too much programmatic activity in a company, you disperse thefocus and confuse your workforce as to what is important.

Eventually they get cynical and really wonder if you know what you're doing.' Stalk warns: 'I sometimes run into firms who re-engineer processes that are irrelevant, or don't deliver to the bottom line, such as speeding up the end-of-the-month closing cycle. ' McKinsey's Hagel cautions: 'Minor processes that do not account for a large share of costs, revenues, quality or assets will fail to make a big impact. For example, Ford Motor re-engineered its accounts payable process and achieved a large percentage impro-vement in costs, time and quality. However, accounts payable is not one of the core processes that determine Ford's success or failure, and therefore re-engineering had little impact on overall performance.' The trouble is that most businesses today are functionally organised in a way that actually obscures, and often totally conceals, the key processes that drive performance and truly add value. Hagel describes the task of overcoming this difficulty as 'making the invisible visible'. Indeed, there is a need in re-engineering for exhaustive preliminary work in interpreting the dynamics of the business and then in erecting credible strategic goals - by which time, you can be sure, the consulting bills will be Himalayan. Yet another criticism of re-engineering is that it is authoritarian, however much its final design calls for empowered workers and interactive teams. 'A lot of theseprojects have an engineering mentality; they have ignored the humansystems aspects,' says Delta Group's Nadler. 'In some ways they arevery much throwbacks to the age of industrial engineering.' Hammer would probably accept this point. He has said: 'To complete a re-engineering the top guy says, "We're crossing the River Jordan, like it or not. The other side will be a better place."' Tom Peters believes re-engineering concentrates excessive power at the top of the pyramid and not where it should be, in the decentralised units fighting market battles. 'You could re-engineer the hell out of Boeing and you would still end up with a phenomenally clumsy company that ought to be broken into a few pieces.' A clever consultant can get a re-engineering project to carry some of the other hot ideas in US management. For example, teams as organisational building blocks for middle and upper managers.

It is difficult to assess to what extent re-engineering and time-based competition have made it across the Atlantic. But rumours are filtering back that, so far, Europeans are underwhelmed. 'Time-based competition has caught on round the Continent, but in the UK we have seen it taken up only in the financial services sector - nowhere else,' says Stalk. 'The British are interested in re-engineering but for them it's a cost-reduction tool, rather than a means of dealing with strategy and competition.' Hammer confirms this. 'In Europe these ideas have not, as yet, been extensively communicated. There are fewer organisations active in this area. Some cultures are more receptive than others. I predict that Britain will eventually do well with these notions.' But by then, given that this does happen, US industry will probably again be a victim of the same restless, quick-fix psychology that resulted in the current re-engineering phase. 'American managers are prone to fads,' Nadler says. 'We are inclined to look for the silver bullet that will solve all our problems. There is a predictable cycle of managerial innovation, where there are early adopters of an idea, and then there's a second generation, where everyone starts to mimic the idea. And a whole market arises and loads of people develop services to feed that market. Then the contrary view, that this stuff does not deliver what it is supposed to, is developed. So everybody rushes off to the next fad.' Most gurus deplore the tendency for business ideas to take on the characteristics of consumer marketing. But that is how the game is played. The best gurus are those who know how to put good old wines into new bottles.

But the greatest of them rise above the market to dis-cuss the more constant truths of good management.

Among these is Peter Drucker, the prototype business guru and still a fertile source of such truths at 83.

'If someone came to me and said, "I'm going to be a manager", I'd advise him to read Drucker,' says Champy. 'He may not draw major management paradigms but he has incredible insight, which is based on historical and practical considerations. Drucker is the platform from which you build. He predicted the way the fashion for information systems would effect the structure of orga-nisations. And he predicted delayering years ago.'.

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