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Published: April 1, 1997

 
 

Getting the Most out of Re-engineering

Though re-engineering has turned into a mass religion during the 1990's -- with its true believers pushing "radical change" and a "clean slate" approach as the sure path to business nirvana -- the evidence of bottom-line payoff from these expensive projects is far from conclusive.

Re-engineering gurus take the happy experiences of such companies as GTE and Aetna to be representative of a pattern of success. Unfortunately, for each positive story there are many negative ones, most of which surface only as statistics in industry surveys.

Indeed, anecdotes about improved customer service and the successful reduction of turnaround time serve only as a starting point for thinking about salient features of good re-engineering management. A one-size-fits-all package of recommendations from the re-engineering literature is unlikely to bring significant payoffs. Instead, a more fundamental set of principles is required, one that can be applied to a wide variety of settings and readily customized for a given organization.

Toward that end, we have developed an approach we call business value complementarity. The central idea is surprisingly simple: If you correctly combine a set of factors that have a complementary value among themselves, that combination will have a significant positive impact on organizational change. The factors range from processes and people to strategies and technologies.

Put another way, the basic tenet of complementarity suggests that the value of changing two or more complementary factors in the right direction is higher than the sum of the values derived by making the same changes in one factor at a time. That is, for a set of complementary factors, the "whole is worth more than the sum of the parts."

The flip side of complementarity is that problems arise when factors are changed in isolation and the impact of such change on other parts of the organization has not been taken into account. This happens because of a lack of overall vision, myopic planning or self-interest. Some of the examples that follow fall into this category, as in the case when a company's decision structure or business processes are changed without a complementary change in the information technology applications.

The business value complementarity approach has two essential components: creating a business value model and learning how to use it.

1. IDENTIFYING YOUR BUSINESS VALUE MODEL:
DOING THE RIGHT RE-ENGINEERING

A business value model shows your high-level performance measures (profitability, shareholder value, market growth, etc.); sector- and business-spe-cific intermediate-level performance measures (capacity utilization, inventory turnover, rate of new products, etc.); and "drivers," or design variables, involving characteristics of information technology, business processes, decision authority and incentives, among other areas.

These drivers are the "knobs" that you can turn in the course of a re-engineering project to favorably affect the intermediate measures, which in turn affect the highest-level measures.

For example, in the late 1980's, Frito Lay determined that in order to succeed in a saturated market with hostile competitors, it had to achieve sustained growth. Frito Lay also concluded that creating market niches and increasing the rate of product development would enable it to achieve that growth. As for the drivers of the business value model, Frito Lay management concluded that flexible information access, decentralized decision authority, appropriate management control systems, efficient business processes and a broad program of incentives would be critical to reaching those two intermediate goals.

At the Phillips Petroleum Company, disappointing financial performance in the late 80's forced management to conclude that the key to profitability in a new world of environmental and safety regulations and increasing global competition would involve two intermediate-level metrics: cost efficiency and higher product/service quality.

Management decided that cost efficiency would come from streamlining processes, easier information access, increased employee skills, a restructured decision authority and appropriate management control pro-cesses. As for the other metric, the company designed a number of different teams. These included "quality action" teams, which had a mandate to identify problems and recommend ways for improvement.

 
 
 
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