(The business value models for Frito Lay and Phillips are shown in Exhibits I and II, respectively, where an arrow from one factor to another implies that a change in the first favorably affects the second.)
2. DOING THE RE-ENGINEERING RIGHT: USING COMPLEMENTARITY AS THE GUIDING LIGHT
Once the business value model is identified, the key question is in which directions and by how much should you turn the knobs? This is where complementarity comes into play.
For example, a team-based structure is expected to result in better decisions than those emerging from a strictly hierarchical design, but only when the team members have easy access to relevant information throughout the enterprise.
Consider the experience of a major credit card company that redesigned its customer service operations, but failed to provide its representatives with the necessary access to information. The customer service personnel had been empowered to make key credit-related decisions -- the only trouble was that to get complete profiles of customers, they still had to access multiple legacy systems separately. Thus, while access to information and employee empowerment are complementary design variables, management failed to consider the nature of the relationship, and focused only on empowerment.
Frito Lay started with changes in its decision authority structure and incentive systems. Unfortunately, the changes failed to contribute to the target performance measures for two reasons. For one thing, the information technology infrastructure was inadequate to provide information-sharing throughout the organization. For another, the appropriate management control processes had not been implemented for the new decision structure.
For its part, Phillips introduced team-based incentives to complement its new team structure. However, as in the case of Frito Lay, management control processes were not initially considered during the creation of the teams.
The bottom line is that neither Phillips nor Frito Lay came up with the complete business value model shown in Exhibits I and II from the very beginning. The vision of the overall value model was the culmination of a restructuring effort spread over several years.
HOW TO ANALYZE COMPLEMENTARITY
To assess the complementary nature of relationships among re-engineering variables, or drivers, management must ask a key question: For a proposed change in any driver in a given direction (say from a strictly hierarchical to a decentralized decision authority), what changes in other driving factors are required to insure that the purpose of the change in the first factor is fully achieved?
Of course, taking factors one by one and repeating the complementarity analysis each time is painstaking and inefficient. A better approach is to identify various choices for each factor, and to analyze various combinations of alternatives in terms of their impact at the highest level in the value model.
MUST ALL CHANGES BE RADICAL?
It is incorrect to assume that all re-engineering changes must be of large magnitude. Many industry surveys show that a majority of re-engineering projects are incremental rather than radical in nature.
Our business value complementarity analysis suggests that such a piecemeal approach -- involving incremental changes heading in the right directions -- can be a rational response to budget constraints and unfavorable organizational and technological conditions. Those conditions can be anything from a lack of skills with regard to new technologies to too much heterogeneity in I.T. applications to a large installed base of legacy systems.
In other words, making radical changes may not pay off in all settings. By taking an organization's limitations into consideration, and gauging their impact on one another, our approach can help management decide just how much change is warranted.