The Reengineering Revolution, A Handbook
Published December 1, 1995 | December 1995 issue
By Michael Hammer and Steve A. Stanton
Ever since I was 10 years old, working at my dad's drug store in southern Minnesota, I have searched for better ways to do things. I suppose most of my early desire for this search was based on my hope to move to more interesting tasks in my job (like cleaning gum from the tile floor). Also, I hated to see customers wait for service. So when I worked the check-out I would always quickly bag the customer's goods while they wrote a check or dug around in their pocketbook for cash (in small towns in the early '70s, nobody used credit cards and debit cards were just a pipe dream). Even though my data entry skills were poor, I used these sorts of techniques to keep up with those more skilled and dexterous than me. We also always said "thank you" which seem to be forgotten words in retail today, but that's a topic for another time.
So when I read the 1993 book, Reengineering the Corporation, by Michael Hammer and James Champy, I was reminded of my days in retail. Taking a theme from W. Edwards Deming that the process is what matters, Hammer and Champy said that to compete in today's business world, a company has to look critically at how it does its work and start afresh. They defined reengineering as "the fundamental rethinking and radical redesign of business processes to bring about dramatic improvement in performance." Although there are lots of important words in this definition, the most important is "process." A process is a group of related tasks that create value. Examples of processes include order fulfillment, hiring and new product development. In any organization there are numerous processes with many more subprocesses. To reengineer, you map your current process, combine tasks and eliminate steps in a particular process, keeping in mind what you are trying to accomplish. Then, after this sort of rigorous analysis, you often look for further opportunities to boost worker efficiency through technology. The application of technology always comes after the detailed process analysis, brainstorming and benchmarking activities.
Hammer has followed up his best selling book with a 1995 "bow to" called The Reengineering Revolution, A Handbook, the subject of this review. The book is divided into three parts: The Elements of Success, Making it Work and Tales from the Road. The first part outlines what an organization should do before embarking on a reengineering effort, and describes some of the potential pitfalls. The second part provides techniques for solving problems during the effort, like dealing with change and ensuring employee involvement in the process. The final part of the book has a series of case studies, describing in detail successful reengineering efforts at Liberty Mutual, an insurance and financial services company, for example, and at Amoco, the oil company. The book also describes several unsuccessful efforts, but the names of those companies have been withheld to protect the innocent.
Because the case for reengineering has been made by action—75 percent to 80 percent of the largest U.S. companies have either completed or started a reengineering effort—the book doesn't try to sell us on reengineering. Instead it is designed to take the mystery out of the process. Companies like American Express, AT&T, Texas Instruments and, locally, Graco and First Bank System's Trust Division, have used reengineering techniques to reduce cost, improve customer satisfaction, reduce cycle time and increase revenue. For those who are still skeptical, I don't need to say more than to note that "reengineering" is a favorite topic of Scott Adams in his popular "Dilbert" comic strip.
So what do Hammer and Stanton say in the Handbook to ensure success in a reengineering effort? They start by telling us what reengineering is not. It is not typical downsizing or restructuring, getting rid of people and jobs to improve short-term financial results. Instead, reengineering focuses on eliminating nonvalue added work and unnecessary steps in the process. One example given is how GTE formerly took repair calls from customers and repaired phones and phone lines. The old process generally involved at least four people before the customer was served. A call would first be answered by a repair clerk, who recorded the problem and contacted a line tester to determine if there was a problem in the phone lines or with the central office. The line tester would then pass the information to a dispatcher, who assigned the case to a service technician, who would saunter to your home to repair the equipment.
GTE reengineered the process. Maintenance and repair is now often handled by one person, but at most two. When customers call to report the problem, the "customer care advocate" can test the line, modify software or locate the problem while on the line with the customer. Forty percent (with a 1998 goal of 70 percent) of all customer problems are now resolved at this stage. If the problem is not handled while the customer is on the line, the advocate becomes a dispatcher, checks the schedules of the service technicians, and tells the customer when the problem will be fixed. This approach gives the customer a specific time when the problem will be fixed, instead of the old process whereby the dispatcher would call you later to inform you when the service technician would arrive.
GTE's reengineering was based on a customer-first approach. The focus, like all reengineering efforts, is on the entire process, not just improving a single task. Now, we tend to say, "what do I need to do to get this (paper, form, product, whatever) off of my desk." Instead, reengineering advocates tell us we should be thinking about the entire process, start to finish, especially if the process involves several people and departments. This is because the "handoffs" between people and departments lead to longer cycle time and inefficient and ineffective processes.
One of my favorite chapters in the book describes the importance of the reengineering team, which is at the core of successful efforts. Many organizations gravitate toward working solo, because that's how we are taught, that's what we can control and that's how we are rewarded. As we face more challenges, we need to learn how to work more effectively in teams. Hammer and Stanton say that "all members of the team must share a dedication to three things: the process that is being reengineered, the needs of the customer of that process, and the team itself." The importance of team building is also emphasized, because teams need to build trust, develop working principles, clarify objectives and get to know each other. This unity will pay off when brainstorming, problem solving and dealing with crises.
Some of the suggestions for the reengineering teams may be applicable to how we conduct meetings on a day-to-day basis. Group techniques, like establishing fixed time slots for resolving an issue, using a facilitator, assigning a note taker, establishing explicit agendas and ensuring that team meetings start and end promptly, are a few of these important points.
Aside from the case studies, which are well written and illustrative, I also appreciated the chapter that describes reengineering in mission-driven organizations. I suppose I like this chapter because it seems directly applicable to the Minneapolis Fed. Hammer and Stanton describe mission-driven organizations as those organizations whose purposes transcend profit. Profit-driven organizations often have a single mission based on bottom-line results. Mission-driven organizations have other goals that stress the importance of processes over results, but they still need to define what it is they are trying to accomplish. For example, the bank has a defined goal to "enhance the formulation and implementation of Federal Reserve policies and priorities through demonstrated leadership, ongoing innovation, rigorous analysis and sound operations." The environment in which we achieve this goal stresses the importance of maintaining public confidence and trust in our collective ability to discharge our responsibilities. Still, the authors acknowledge that mission-driven organizations face many of the pressures of businesses, like escalating costs, constant change and, yes, competition for the services they provide.
The motivation for mission-driven organizations that undertake reengineering efforts is doing things more effectively-rethinking processes and finding new, creative ways of improving them. But Hammer and Stanton put forward two problems that mission-driven organizations face. The first is how do they determine success? Unlike businesses, which can measure success by the bottom line-profit, return on equity, etc.-performance measures in mission-driven organizations are more difficult to establish and are often non-numerical measures.
The second problem is how do mission-driven organizations identify customers and their needs? The Minneapolis Fed's customers or stakeholders are many. They include the public, financial markets and institutions, other regulators, the Board of Governors, other Reserve banks and so on. To resolve these questions, the authors suggest that mission-driven organizations carefully identify and understand their customers, specify performance measures where possible and be very sensitive to the mission of the organization, using criteria that often include factors other than cost and efficiency in the analysis.
The authors of The Reengineering Revolution, A Handbook give business people details they need to know about the reengineering revolution, using excellent examples and easy prose to make their points. The reengineering concept will not go away soon, because organizations will continue to find ways to improve their effectiveness and efficiency and the methods behind reengineering provide a solid analytical framework for doing so.
For those people who have already read Reengineering the Corporation, this 1995 Handbook will help clarify reengineering concepts and identify some of the pitfalls and "tricks of the trade:' For those who haven't read anything on reengineering, this book is an excellent primer and provides the basic theory along with some illustrative case studies. Finally, for those who like "Dilbert," there are several enjoyable strips sprinkled throughout the book. In other words, there is something for everybody in The Reengineering Revolution, a Handbook.