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8/7/2019 How to make reengineering work
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THE McKINS EY QUARTERLY 1994 NUMBE R 2 107
How to make ree nginee ringreal ly work
Companies often squand er their energies on attractive-looking
projects th at fail to produc e bottom -line resu lts
Euge ne A. Hall, Jam es Ro sen thal, and Ju dy Wade
A study of reengineering projects in over 100 com pan ies reveals how d iffi cu lt
these projects are to plan and im plem ent and, m ore im portant, how often they
fail to achieve real business-unit impact. The study identified two factors –
breadt h and depth – that are critical in translatin g short-term , narrow-focus
process im provem ents into long-term profits. Successful projects a t B an ca d i
America e di Italia, Siemens Nixdorf Service, and AT&T demonstrate how
com pan ies can appropriately mak e their reengineering projects broader and deeper. S uch efforts, however, if poorly m an aged, provoke organ izat ional
resistance. But such opposition can be overcome if committed managers
approach reengineering as a pain ful bu t necessary disrupt ion of the status quo.
I
N ALL TOO MANY COMPANIES, reengineering has been simultaneously a
great success and a great failure. After months, even years, of careful
redesign, these companies achieve dramatic improvements in individual
processes only to wat ch overa ll resu lts decline. By now, par adoxical out comesof this kind have become almost commonplace. A computer company
reen gineer s its fina nce depart men t, redu cing process costs by 34 percent , yet
operating income stalls. An insurer cuts claims-process time by 44 percent,
yet profits dr op. Man agers proclaim a 20 percent cost r eduction, a 50 percent
process-time reduction, a 25 percent quality improvement, yet in the same
period, business-un it costs increase a nd profits decline.
In short, too many companies squander management attention and other
resources on projects that look like winners but fail to produce bottom-lineresults for th e business unit a s a whole.
But why? The promise of reengineering is not empty: it can actually deliver
revolutionary process improvements, and major reengineering efforts are
being conducted around the world. Why then can’t companies convey these
resu lts to the bott om line?
Reprinted from t he
Harvard Bu siness
Review
Au th ors’ note: We would like to tha nk Tom Ander son, Sanjeev Dheer, Stua rt Fla ck, an d BetsyFreema n for their contr ibutions t o this ar ticle.
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Three critical elemen ts
Our resear ch examined reengineering projects in more than 100 companies and
included detailed analysis of 20 of these projects. It revealed how difficult
redesigns actua lly are to plan an d implement an d, more import an t, how often
th ey fail to achieve rea l business-un it impact. Our stu dy ident ified two factors
– breadth an d depth – that are critical in
translating short-term, narrow-focus process
improvements into long-term profits. First,
th e process to be redesigned mu st be broadly
based on cost or customer value in orderto improve performance across the entire
bus iness un i t . And the redes ign mus t
penetr at e to a company’s core, fun dam entally
cha nging six cru cial organizat iona l elements. These depth levers include roles
an d r esponsibilities; measurem ents an d incent ives; organ izat iona l str ucture;
inform at ion technology; shared values; an d sk ills.
Successful reengineering projects in diverse industr ies an d locat ions demon-
strate how companies can expand the dimensions of their reengineeringprojects. Senior executives at Banca di America e di Italia (BAI), AT&T, and
Siemens Nixdorf Service, for example, set broad goals, from creating a paper less
ban k a t BAI t o becoming t he m ost cust omer-responsive an d skilled compu ter-
servicing compa ny a t Siemens Nixdorf. They then completely rest ru ctu red a ll
organizat iona l element s – a nyth ing from th e layout of BAI’s bran ch offices t o
th e skills requir ed of AT&T’s sa lespeople – in order to implement th e new
designs successfully.
Ult imately, however, a reengineering project – like an y major cha nge program– can produce lasting results only if senior executives invest their time
and energy. As the experiences of
BAI, AT&T, and Siemens Nixdorf
reveal , large-scale reengineering
exacts extraordinary effort at all levels
of an organization. Without strong
leadership from top man agement , the
psychological and political disruptions
that accompany such radical change can sabotage the project. Inevitably,managers and employees may feel that their turf, jobs, and organizational
equilibrium ar e under a tt ack. But t op-level man agers can overcome opposition
to the new design if th ey approach reengineering as a painful but n ecessary
disru ption of th e sta tu s quo.
Expand ing the dim ensions of reengineering
Performance improvement in 11 of the 20 cases that we examined in detail
measured less than 5 percent, whether evaluated in terms of change in
HOW TO MAKE REE NGINEERING REALLY WORK
108 THE McKINS EY QUARTERLY 1994 NUMBE R 2
To tr an slate short-term , nar row-focus impr ovemen ts in to long-ter m p rofits, th e process to beredesigned mu st be broadly
based on cost or cust omer value
A reen gineer ing project canproduce last ing resu lts only if senior execut ives invest th eir
time and energy
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earnings before interest and taxes (EBIT) or in terms of reduction in total
business-unit costs.* Respectable results, but ha rdly th e stu ff of legend. On th e
other hand, ma ny of the sa me cases reduced costs of the r edesigned process by
an impressive 15 to 50 percent . Nar row-process successes like th ese have led
senior executives to expect overall business-unit improvements to follow suit
(see Exhibit 1).
By taking a close look at the 20 detailed cases, we can see why most process
reengineering effort s ha ve in fact ha d litt le measura ble impact on th e overa llbusiness unit. A few common missteps emerge. On the one hand, redesign
projects often aim a t pr ocesses th at ar e too na rr ow, and cha nge only one or two
of the depth levers. On t he other hand, even with sufficient depth, effort s st ill
focus on a process th at is too narrowly defined and therefore h as litt le discernible
HOW TO MAKE REE NGINEERING REALLY WORK
THE McKINS EY QUARTERLY 1994 NUMBE R 2 109
* In this article, we chose to report performance improvements primarily by using cost, bothbecau se it is t he eas iest way to compare effort s across indust ries an d becau se reductions in costar e more directly at tr ibuta ble to perform an ce-improvement efforts. However, we also measu redtotal EBIT improvement in a num ber of cases an d found t he resu lts consistent with th e costresults.
<1
1
1
14
3
3
4
2
8
6
5
22
20
17
19
1613
3
1
16
25
25
21
34
20
15
31
53
33
1834
36
15
20
20
23
38
2712
Narrow-process improvements don’t yield bottom-line results
B r e a d t h o f p r o c e s s r e d e s i g n e d
S i n g l e f u n c t i o n
B u s i n e s s u n i t
Unidi
mensio
nal
Multidi
mensio
nal
Depth
of bu
siness
chan
g e
A
B
C
D
E
F
G
European retail bank X
European retail bank YUS electron ics manufacturer
US hot el chain
US bank (operating product)
European compu ter manu facturer
UK consumer company
H
I
J
K
L
M
N
UK life insurer
US computer manufactu rerUS retailer
US insurance company
US compu ter processor
Pacif ic-Rim lif e insurer
Pacif ic-Rim indu strial company
O
P
Q
R
S
T
Euro pean in dustrial (US division)
European in dustr ialEuro pean commercial bank X
Euro pean commercial bank Y
US agricult ure company
US inf ormation services company
A
F
D
C
E
I
J
H
G
B
L
K
M
R
S
T
O
Q
N
P
Exhibit 1
Projected cost reduction as a percent of
Tot al business-un it costs Process
Projected cost savings
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impact on overall performance. Still more distressing, many managersnever learn that their reengineering effort s do not have measurable impact. They
analyze improvements relat ive to the process being redesigned rather
than the business unit as a whole, or
never develop performance tracking
mechanisms to measure results.
Only six of th e 20 compa nies tha t we
analyzed in detail achieved an average
18 percent reduction in bu siness-un itcosts. Th ese compa nies, import an tly, ha d per form an ce impr ovement s a long
multiple dimensions – typically cost, revenue, time, and quality. Despite
differen ces in indu str y, geographic region, a nd compet itive situa tion, th ese
compan ies des igned and conducted the i r reeng ineer ing p ro jec t s in
strikingly similar ways. For all companies, expanding the dimensions of
the redesign project was critical to success. Only those projects that were
sufficiently broad and sufficiently deep produced widespread and long-lasting
bott om-line r esult s.
Ident ifying breadth levers
Managers must first identify the activities to include in the process being
redesigned that are critical for value creation in the overall business unit.
A process can be as na rr owly defined a s a single activity in a single fun ction
or as broadly defined as the
entire business system for
the business unit. Our st udy
divided cases into quartiles
based on the breadth of theprocess being redesigned. At
one end of th e spectr um were
companies that redesigned
the nar rowes t p rocesses ,
usual ly a s ingle act iv i ty
with in a s ingle funct ion ,
such as accounts-payable
processes. Middle-of-the-road
projects reengineered intrafunctional or cross-functional processes, such asnew product development processes. And at the far end were companies that
redesigned one or more processes tha t compr ised most of th e crit ical activities
in the business unit (see Exhibit 2).
While the reengineering of single activities or functions can be important to
companies with limited problems, a narrow approach to redesign cannot
produce the kin d of widesprea d resu lts t ha t m an y compa nies a re looking for.
Process breadth is important for two reasons. First, if more activities are
HOW TO MAKE REE NGINEERING REALLY WORK
110 THE McKINS EY QUARTERLY 1994 NUMBE R 2
Only broad an d deepprojects produce widespread
an d long-last ingbott om-line r esults
Cost reduction as a percent of the business unit
Exhibit 2
Breadth reduces overall business-unit costs
13 2 3 3
8
2022
191617
441 1 1<1
8
3<1%
17
Breadth of process redesignedSingle funct ion Business unit
Business activitiesthat drive
competitiveadvantage
Any one act ivity All act ivit ies
Quart ile 1 Quart ile 2 Quart ile 3 Quart ile 4
Quartile average
6 5
13
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included in the process , the improvements are more l ikely to extend
th roughout th e entire business un it. Second, if a pr ocess includes inter relat edactivities, a company may identify incremental opportunities that would
not sur face in single-fun ction per form an ce-impr ovement effort s . Such
opportunities include removing delays and errors in handoffs between
fun ctiona l ar eas, elimina ting pr oblems cau sed upst rea m of an activity, an d,
fina lly, combining steps t ha t span business un its or functions (see insert).
Too br oa d or t oo n a r row ? Man y reen gineer ing effor t s fa i l becau se
of insu ffic ien t p rocess b read th . Cons ider one European commerc ia l
bank’s reengineer ing effor t . By redesign ing some of its ba ck-office processes,th e ban k expected t o redu ce process costs by as much as 23 percent . However,
the actual cost reduction, when measured in terms of total business-unit
costs, was only 5 percent ; EBIT improved by a scan t 3 per cent . The rea son for
such modest results: the bank overlooked many back-office processes in
plan ning t he r edesign; in addition, back-office costs in general r epresen ted
only 40 percent of the ban k’s t ota l costs. Th e pr ocess, in sh ort , ha d been
too narrowly defined to have any significant impact on business-unit
perform an ce as a whole.
HOW TO MAKE REE NGINEERING REALLY WORK
THE McKINS EY QUARTERLY 1994 NUMBE R 2 111
FIND UNEXPECTED OPPORTUNITIES FOR REDESIGN
Opportunity
Eliminate problems
caused upstream
of activity
Remove delays
or errors during
handoffs between
functional areas
Combine steps that
span businesses
and/or funcrions
Example
Problem . Errors in order entry at a US computer company were
caused by sales representatives who incorrectly configured systems.
As a result, the cost of the sales and order process was 30 percent
higher than that of competitors, and the error rates for some
products were as high as 100 percent.
Redesign . The cross-functional redesign fixed both the
configuration problems and salesforce skills so that on-time delivery
improved at significant cost savings.
Problem . The processing of a new policy at a UK insurance
company involved ten handoffs and took at least 40 days to
complete.
Redesign . A case-manager approach was implemented so that
only one handoff occurred, and the policy was processed in less
than seven days.
Problem . At a US electronics equipment manufacturer, seven
possible job titles in three different functions were involved in the
nine steps required to provision hardware.
Redesign . All but two job titles were eliminated, leaving one job in
sales and one job in manufacturing.
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St ill oth er reen gineer ing effort s fail becau se of a too broad, indiscriminateapproach. Indeed, a diagnostic phase is cr itical t o a company’s ability to
deliver value t o its customers and t he bottom line. The key is to identify which
two or th ree elements compr ise cust omer value, as well as wha t defines the
compan y’s compet itive advant age. The next st ep is to focus on t he pr ocesses
in those areas that fall short of customer
expectations, management aspirations, and
compet itor p erform an ce.
One insur an ce compa ny, for example, th oughtinitially that customers cared about having
a broad portfolio of products and knowledgeable service representatives.
However, in the diagnostic phase, the company conducted a comprehensive
study of customer needs. It found that customers cared more about speedy
claims processing, an area in which the company was underperforming. The
reengineering performance objectives reflected this new information, and
saved the company the wasted effort of redesigning pr ocesses less crucial to its
compet itive advant age.
In a less financially successful reengineering effort, another insurance
company decided to reengineer its personal-insurance lines. Top-level
managers, however, found the plan too risky because at first it included
nearly $1 billion in insurance payouts. During the diagnostic phase, they
decided instead to reengineer a claim-settlement process that amounted
to a m ere 3 t o 4 percent of th e business-unit cost base. Becau se th e compa ny
want ed to minimize disrupt ion an d opted for th e quick fix, the r eengineering
project will most likely have a negligible effect on the performance of the
business un it as a whole.
Manipulating depth levers
The successful redesign of a broad process requires the complete restructuring
of th e key drivers of behavior so tha t actu al resu lts measure up to the r edesign
plan on paper. By depth we mean how many an d how much the six depth levers
referred to previously change as a
resu lt of reen gineer ing.
Our s tudy d iv ided the cases in toquartiles based on how many of the
depth levers t he r edesign changed. In
order to isolate depth from breadth,
we measured cost reductions as a
percent of the pr ocess being redesigned inst ead of as a percent of the bus iness
unit as a whole. The conclusion: companies that manipulate all six depth
levers t o bring about behaviora l cha nge show the most dr am at ic process-cost
redu ction (see Exh ibit 3).
HOW TO MAKE REE NGINEERING REALLY WORK
112 THE McKINS EY QUARTERLY 1994 NUMBE R 2
Compan ies that man ipulatea ll six “depth levers” to
bring about beha viora l cha ngeshow the most dra ma ticprocess-cost reduction
A diagn ost ic phase iscrit ica l to a company’s a bility
to deliver valu e
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One US electronics equip-ment manufacturer realized
the hard way how cr i t i ca l
addressing all the important
depth levers can be to improv-
ing perform an ce. Man agers
knew tha t one o f the key
perform an ce pr oblems was
the la rge sa les d i scoun ts
given to the company’s biggestcustomers. The redesign team
felt that the solution lay in
changing the existing revenue-
based scheme to a profit-
based one.
However, the company did not
initia lly include compen sation
for i ts account executivesin the redesign. As a result,
despite n ew job aids and n egotiat ion tr aining, managers saw litt le improvement
in discount levels. When the company eventually switched to a profit-based
compensation plan, discount levels fell from 29 to 20 percent off the list
price within a matter of weeks. The company has now projected an overall
improvement in EBIT of 25 percent.
An effective transformation of all six depth levers requires a clean-slate
approach to process redesign. Only then can companies avoid the classicreengineering pitfall trying to fix the status quo. If the redesign plans are
sufficiently broad, all the old support systems will become obsolete – from IT
systems to employee skills. Starting
from scrat ch, companies can plan an d
build th e new infra stru ctur e required
to realize the n ew design.
This new infrastructure should include
progra ms like comprehensive tra iningan d skill-development plans th at require years, not merely months, for success;
performance-measurement systems that track how well the organization is
meeting its targets and how employees should be rewarded based on those
objectives; communication programs that help employees understand why
an d how th eir behavior m ust cha nge; IT development plans th at capt ure the
benefits of new technology at a minimal investment while, at the same time,
long-term st ru ctu ra l cha nges are being made; an d, fina lly, pilots t ha t t est and
refine t he r edesign as well as its implementa tion.
HOW TO MAKE REE NGINEERING REALLY WORK
THE McKINS EY QUARTERLY 1994 NUMBE R 2 113
Cost reductio n as a percent of the process
Depth of business changeUnidimensional Mult idimensional
19%
2523
35
Exhibit 3
Depth reduces specific process costs
12
2723
20
3836
2018
15
34
16
25
31
53
34
25
Str ucture
Skills
IT systems
Roles
Measurements/ incentives
Shared values
Any one depth lever All depth levers
Quart ile 1 Quart ile 2 Quart ile 3 Quart ile 4
Quartile average
20
15
21
33
If redesign plans ar esufficiently broad, a ll theold support systems will
become obsolete
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Com m itting leadership to changeEven with sufficient breadth and depth, a reengineering project will fail
without th e full comm itment of senior execut ives. In nine of th e cases stu died,
we evaluated the disparity between actual and projected impact of fully or
almost fully implemented projects (see Exhibit 4). Five of these efforts have
achieved their projected impact. And, interestingly enough, in four of these five
successes, new chief execu-
tives were brought in before
or during the projects. These
senior execut ives u nder stoodhow to lead an organization
through a period of radical
change – they combined a
tenac ious pursu i t o f the
performance objectives with a
flair for building consen sus at
all organizational levels.
BAI, for example, broughtin new management to make
th e ban k compet i t ive with
other European banks. The
new CEO demonstrated his
s t rong commitment to the
reengineering project by
placing his best people on
the redesign team, making
s ign ifican t inves tmen ts ininformation technology and
new skill tr aining, man aging
by decree when necessary,
and giving the team adequate
time to effect fundamental change. On th e other ha nd, the management of a US
insura nce compa ny did not aggressively sponsor it s redesign project, leaving it
to the r edesign team t o sell the package to the front line. Man agement refused
to enlist its top people. As a r esult, th e team did not comm an d respect in the
field, and th e project failed.
In the most successful redesigns the study examined, managers made few
compr omises an d were generous with r esources. They saw implement at ion not
as a once-and-for-all effort but as a series of waves washing over the organization
for a period of years, leaving a system for continuous improvement in place.
Most import an tly, these execut ives invested th eir own t ime in th e project. In t he
six reengineering projects that had significant business-cost reductions, top
execut ives spent between 20 an d 60 percent of th eir time on t he project.
HOW TO MAKE REE NGINEERING REALLY WORK
114 THE McKINS EY QUARTERLY 1994 NUMBE R 2
Exhibit 4
Committed top managers help the redesign pay off
Euro
pean
retail ba
nk: Y
High commitment Low commitment
US electronics m
anufac
turer
Europe
an re
tail ba
nk: X
†
Euro
pean
compu
ter m
anufac
turer
Euro
pean
indu
stria
l ( US
divi
sion)
US co
mpu
ter m
anuf
actu
rer
US in
form
ation service
s com
pany
US in
suranc
e co
mpa
ny
US com
puter p
roce
ssor
Europe
an re
tail ba
nk: X
†
NANA
$500
150
275
22
20
0
Projected impact Actual impact US$ Impact in millions
60%
50
40
30
20
10
0
Cost reduction as a percent of the process
* Same company, two redesign effo rt s. Top management in t he fir st eff ort d idnot implement the new design and eventually resigned; two years later, newmanagement i mplemented the f ull design.
New management
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In contrast, a manager at a less successful company described the leadershipof its pr ocess r edesign a s ha ving “th e nomina l sponsors hip of someone t wo
layers down in t he organ izat ion, but in a ctu ality, it was dr iven by someone
four layers down. The ultimate redesign ended up focusing on narrow
cont ra ct a nd ba ck-office sales processes an d never r eally went an ywhere in
ter ms of implement at ion.”
The following profiles of BAI, AT&T, and Siemens Nixdorf Service provide
detailed examples of companies that have undergone the difficult , but
ult imat ely rewardin g, process of reen gineer ing. All thr ee have developed thedepth, breadt h, and leadersh ip th at have ensu red t heir pr ojects’ success.
Maintain ing strateg ic position at Ban ca di Ame rica e di Italia
Picture this: a customer walks into a branch of a midsize Italian bank. In
front of her is a small airy office where the securities officer sits, ready to
assist her in m ak ing investment decisions. There ar e no oth er offices or “back-
stage” spaces. Instead, a single line feeds to
th e thr ee tellers; th e man ager sits at a n opendesk directly facing the line.
The customer fills out a deposit slip with h er
name, account number, total sum of the five
checks she is depositing, an d th e amoun t t o be
withdra wn. No one is stan ding in line, so she st eps up t o th e closest t eller. The
teller t ypes in th e account num ber an d total am oun t of th e deposit an d th en
feeds the checks through a scann er. While he’s wait ing the two or t hr ee seconds
for the checks to be recorded in the system and for the correspondent bank to benotified electr onically, he calls up t he cust omer ’s profile and sees t ha t she
looks like an excellent candidate for a certificate of deposit (CD). As a receipt
containing detailed information about the five checks prints out, the teller
ask s th e cust omer if she’s inter ested in a CD.
Meanwhile, a help screen on his terminal provides him with detailed informat ion
about CDs: their benefits and common customer objections and responses.
After the discussion, he hands her the deposit receipt and some promotional
ma terial on CDs. The tr an saction has t aken 30 seconds, and t he checks h avealready been debited an d credited t o the a ppropriat e par ties. The t eller will
handle the checks only once more: when he coun ts t he t ota l number at the end
of th e day an d reconciles tha t t ota l to th e one on his compu ter. And because of
this new process, the teller doesn’t need any back-office support.
As futur istic as th is scenar io may sound, this is the Ban ca di America e di Ita lia
today. Owned by Deut sche Ban k, BAI has undergone a r adical tran sform at ion.
The CEO recalls, “We had very few strategic strengths, a very dispersed
HOW TO MAKE REE NGINEERING REALLY WORK
THE McKINS EY QUARTERLY 1994 NUMBE R 2 115
A help screen on th e teller’ster mina l provides him
with det ailed inform at ionabout CDs
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network, and a very high operating-cost structure. We had to find a way to growrapidly, while reducing the cost-per-branch and improving customer service.”
BAI’s tr an sform at ion st ar ted with th e CEO’s obsession t o st ren gth en
th e ban k’s st ra tegic posit ion by creat ing a “pap erless” ban k ba sed on
just-in-time ma nufactur ing principles. The CEO immediat ely signed on Andrea
Giochet ta – cur rent ly BAI’s chief informa tion officer – who sha red the CE O’s
drive and had th e technological know-
how to creat e a pa perless ban k.
Th e two s e t o u t t o r ed es ig n t h e
bra nches , focus in g on impr ov ing
customer-service levels as well as
front-office efficiency and effectiveness. In this way, they could reduce the
nu mber of people per bran ch and open n ew branches. To reach this goal, th ey
had to redesign all retail-branch transactions from scratch. With 80 to 85
per cent of BAI’s reven ue a nd cost s comin g from r etail ban king, th e wide-
spread bran ch r edesign ensur ed th at th e project would be broad enough to
produce bott om-line resu lts.
Diagnosis and clean -slate redesign: October 1988
At BAI, two team s system at ically diagnosed processes an d th en r edesigned
them without considering the constraints of the current organization.
As a result, the teams came up with innovative new approaches to retail
bank ing. First, t he organization t eam, whose members came from all over th e
organization, broke down all transactions into ten “families”: payments,
deposits, with drawals, money orders, bills, consu mer credit, foreign exchange,
credit cards (merchant and card holder), sourcing, and end-of-the-daybranch processes (the stocks, bonds, and securities process was included
lat er). The t eam car efully docum ent ed t he flow of a specific process with in
one of th e fam ilies – depositing a check drawn from a corr esponden t bank into
a cust omer ’s accoun t for insta nce. The ana lysis was pa inst ak ingly extens ive,
covering accounting flow, all relevant forms
used by both customers and the bank, and
controls for maintaining financial security
an d integr ity.
With a detailed pictu re of a tr an saction, th e
team could effect ively redes ign i t f rom
scratch. The check-deposit transaction, for
example, previously required 64 activities, nine forms, and 14 accounts.
After redesign, it needed only 25 activities, two forms, and two accounts.
This redesigned process then became the prototype for restructuring all
tr an sactions with in th at fam ily. Finally, the organizat ion t eam ha nded off th e
prototype to the technology team, charged with thinking through the IT
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To rea ch its goal, th e ban k ha d to redesign all reta il-bra nch
tr an sactions from scra tch
The t echn ology team work edindependent ly of th e
organ izat ion t eam so th atcur rent system limita tions didnot influen ce the redesign
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implications. Giochetta explains that “We had the technology team work independently of th e organ izat ion t eam so th at cur ren t system limita tions did
not influ ence the organ izat ion t eam ’s r edesign.”
The technology team focused on how to store data at the maximum level of
deta il. The bank’s single-tier ma infram e, with rea l-time conn ections to th e
branches, was already reaching full capa city during peak tr an saction t imes. To
minimize the load on the central mainframes, the team developed a client-
server architecture for prioritizing data – what information was needed for
opera ting support and what da ta was needed for decision support , for example.
Preparing for change: April 1989
With a redesigned prototype for each transaction family, the organization
team began redesigning all processes in each transaction family, some 300
processes in all. The team then began to think about depth , ident ifying th e key
organizational drivers that would determine the success of the redesign:
What kind of back-office a nd front -office st aff cha nges wer e n ecessary? What
new skills or positions were required? What
kind of physical layout would complementth e new design?
Mean while, th e technology team set t o work
tu rn ing the prototype and IT pr inciples into a
rea l system. The tea m worked meth odically, one t ra nsa ction at a time, and
met r egular ly with ma na gement to ensur e tha t th e project didn’t str ay
off course. Branch managers and tellers helped design screen displays,
guar an teeing tha t bra nch staff would have an accessible screen a nd th at th e
system would h ave well-tr ain ed cha mpions. Fina lly, in less th an 15 month s,th e tea m r olled out th e software for t he firs t family of tr an sactions.
Rollout: February 1990
The softwar e was rolled out as each tr an saction r edesign becam e available: in
oth er words, when th e Verona branch went on-line, it r eceived th e system for
only th e first product family, while the 50th branch brought on-line received all
of the family redesigns at once. Tellers underwent a five-day t ra ining period. In
addition, branches were restructured to eliminate all back-office space, and
the manager was placed directly out in front of the customer. Finally, a newsecur ities-officer position was crea ted, so th at BAI could increa se its sha re of
securities transactions. As a result, securities customers increased 306 percent
from 1987 to 1991.
Today, BAI customers are not the only beneficiar ies of the st reamlined branches.
The bank has added 50 new bra nches without an y increase in personnel an d
with minimal investment in systems development. The average number of
personnel per branch has dropped from seven or nine to three or four. Daily
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What organ izat iona ldrivers will determ ine th e
success of a redesign?
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cashier closing time has shrunk from over two hours to ten minutes. Andrevenue has doubled from 1987 to 1992 (24 percent of that increase has
been attributed to the reengineering effort). But Gianni Testoni, CEO for
Deutsche Ban k Group-Italy, has ident ified new areas for impr ovement , namely
str engthening BAI’s ret ail bran ch configura tion a nd t argeting new – and m ore
profitable – customers. Because of its successful redesign, BAI is in a good
position to meet th ese cha llenges.
Improving performanc e at AT&T
Since th e mid-1980s, AT&T’s execut ive comm itt ee had been t rying to improve
the lackluster performance of Global Business Communications Systems
(GBCS), th e $4 billion un it t ha t sells business t elephone syst ems (PBXs). By
ear ly 1989, fru str at ion h ad set in. Despite credible progress, the business un it
seemed to have hit a wall. According t o GBCS President Jack Bucter, while each
year the business unit met h igher performance
targets for individual functions, its overall
perform an ce did not improve.
Believing that only radical change would
invigorate performance, Bucter decided to
assemble teams t o redesign the business’s core pr ocesses. Glenn Hazard, an
11-year veteran of AT&T known for building a top-performing sales branch
from scrat ch, was enlisted a s t eam leader t o reengineer th e process for selling
and installing PBXs. Bucter also assigned full-time team members from a
wide range of functions: sales, services, product management, Bell Labs,
manufacturing, materials management, information systems, and training.
Bucter was candid about the stakes of the project. If performance continued tosta gnat e, th e PBX business would be sold or liquidat ed.
Diagnostic: J une 1989–February 1990
The team took a wide-lens approach, surveying process steps from initial
customer contact through to the collection of funds, including a range of
system sizes, geographic ar eas, and cust omer s. By int erviewing em ployees
and customers and fo l lowing paper t ra i ls , the team reconstructed 24
cases wh ich became t he basis for th e
diagnostic. The tea m t hen pored overthe cases, identifying every person
involved, their activities, and how
their time was spent.
The team found several areas for
improvement . First was t he pr oblem
of rework. Too many handoffs between functions and a lack of clearly defined
roles and responsibilities resulted in significant inefficiencies. An account
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Assign full-t ime t eammembers from a wide ra nge
of functions
Too ma ny ha ndoffs betweenfunctions a nd a la ck of clear ly
defined roles andresponsibilities r esult insignificant inefficiencies
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executive negotiated the sale; a system consultant determined the specificationsfor the system; and a system technician installed the hardware. In all, 16
ha ndoffs were requ ired t o complete a
system, and no one took responsibility
for t he ent ire tr an saction.
The ma nufactu ring and delivery cycle
also generated excess ive rework.
Fina l inst allation often cam e months
or even year s after th e cust omer an d accoun t execut ive negotiat ed a deal. Inth e meant ime, if the customer’s n eeds cha nged dra ma tically, th e system t ha t
ha d been agreed to earlier frequen tly cam e up sh ort . The price of this delay
was h eavy: dissatisfied customers a nd substa nt ial write-offs.
In addition, the team found that front-line employees were insensitive
to profitability, largely because they lacked information. Marketing was
often focusing on the least profitable customers, while sales concentrated
on maximizing revenues, often to the detriment of the profitability of the
deals th ey negotiat ed.
Finally, indirect expenses were excessive. The case studies revealed that
headquarters and centralized support groups were not critical to selling
and installing most of the systems, but the
services of both were employed on virtually
every system .
But a still thornier issue hid beneath these
problems. Critical line functions – namely,sales and m anu facturing – did not report to
the head of GBCS. At the time, AT&T had a
single sa lesforce t ha t sold PBXs, long-dista nce comm un icat ions services, an d
oth er pr oducts t o lar ger businesses. Given th e size and dem an ds of th e long-
distance business, salespeople often neglected the smaller PBX business.
Moreover, becau se t hey sold so man y complex products, t hey often ha d only
superficial familiarity with the products they were selling. But customers
expected salespeople to have in-depth technical knowledge about these
products, an d AT&T’s compet itors, whose sa lesforces specialized in a singleproduct, could provide th eir customer s with t ha t h igh level of expert ise.
Bucter was certain that creating a dedicated PBX salesforce was essential
for success. Only th en would th e redesign be broad en ough t o include a ll the
fun ctions critical t o selling and inst alling PBXs. This t ask , however, went far
beyond t he origina l scope of th e project a nd could not be u nder ta ken without
th e inpu t of AT&T’s execut ive comm itt ee. Fort un at ely, the oth er bu siness
units sharing the salesforce were coming to the same conclusion.
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Front-line employeesar e often insensit ive to
profitability – lar gely becau seth ey lack in form at ion
When salespeople sellma ny complex products, th ey
often ha ve only superficialfam iliarit y with th e products
th ey ar e selling
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Clean-slate redesign: March 1990–March 1991The execut ive comm ittee a greed to the a ut onomous sa lesforce and tu rn ed to
Pat Russo, a nine-year veteran of AT&T in a variety of sales and service
roles, to build and run the new PBX salesforce. With Russo on board,
Ha zar d’s r edesign t eam set t o work
i n e a r n e s t . O n e k e y t a r g e t w a s
minimizing the t ime between sale
an d final insta llat ion.
The t eam cut th e nu mber of projecth an d o f f s f ro m 1 2 to t h ree an d
created a new position, project manager, to oversee sales transactions
from incept ion to complet ion . Sales and ins ta l la t ion act iv i t ies were
integrated at the local branch level, and centralized sales support was
great ly reduced. Fina lly, th e t eam ra n compu ter simulat ions of the effects of
the redesigns on cost, cycle times, and error rates. The predictions were
heartening: for a typical small system, cycle time would drop from three
months to three weeks; total costs would drop by about one-third; and
errors would approach zero.
The team then turned i ts at tention to the organizational ramifications
of th e r edes ign . Th e r adical ly d ifferen t job r esponsib i l it ies an d sk i ll
r e d e s i g n s p o s e d a n i m m e n s e h u m a n -
resource challenge. The staff would need
train ing and job support to unders tand
their new roles and the new emphasis on
cus tomer s an d profits. For example, before
redesign, account executives focused onre l a t i o n s h ip s r a th e r t h an o n t ech n ica l
expertise t o sell their pr oduct. The r edesign
team creat ed a progra m t ha t t aught account executives th e required new
skills, while at the same time convincing them that increased technical
know-how would only make them better salespeople.
The team also began to modify technical systems to support the redesign.
Using PCs and off-the-shelf software, existing systems were simplified, and
new systems were designed t o redu ce cycle times and pr ovide accur at e profitestimating and tracking on each job. In September, Hazard and the team
tested their work in a pilot program and got results strikingly similar to
th ose th ey had forecasted.
To direct addi t ional senior management a t tent ion to the new design ,
Bucter a sked Bar ry Kar afin, t hen hea d of R&D, to oversee th e project on a
full-time basis. Kar afin t ur ned his immediat e att ention t o ensur ing th at all
cond itions necessar y for s uccessful implemen ta tion were in place.
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The team ran comput ersimu lat ions of th e effects of th eredesigns on cost , cycle t imes,
an d error rat es
The redesign t eamconvinced accoun t executives
th at increased t echn icalkn ow-how would mak e th em
bett er sa lespeople
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Rollout: April 1991–April 1992As the pilot neared completion, Russo, Karafin, and Hazard faced another
complicat ion. Bucter, who had sta rt ed and cont inuously support ed th e redesign
effort, was transferred, and a new president, Jerre Stead, was brought in.
What could have been a devasta ting setback became instead a vindicat ion of the
tea m’s effort s. In fact, St ead was so impr essed by the r edesign pr oject t ha t he
made it cent ra l to his program for th e business.
And with good cause: admittedly, as the business accumulates experience,
some job descriptions have been changed and some hastily assembled ITsystems refined, but all in all, th e results of th e redesign h ave been dra ma tic
and extensive. Customer willingness to repurchase has climbed from 53 to
82 percent; adjustmen ts have dropped from 4 t o 0.6 percent of revenues; bills
paid with in 30 days of inst allat ion in crea sed from 31 to 71 percent ; an d 88
percent of cust omers ra te t he pr oject ma na gement of their system sa le and
inst allat ion as “excellent .” Russo has a lso noted a new pr ofit a nd cust omer
focus. The process changes a t GBCS ar e su ccessfully producing a n an alogous
cha nge in corpora te cultur e.
Retaining service levels at Siemen s Nixdorf
With 3.4 DM ($2.1 billion) in revenu es an d a hea lthy pr ofit mar gin, Siemens
Nixdorf Service – which installs, services, maintains, and networks the
compu ter software and har dware sold by two recent ly merged high-tech giant s
– ha rdly seemed a candidat e for a ra dical redesign. But , in fact, by late 1990,
th e 12,900-person compa ny was poised on t he br ink of crisis. With a shr inking
volume of cont ra ctu al maint enance and increasing manpower costs, the service
organization would inevitably start to lose money by 1995 or 1996. In theface of increas ing compet ition, Siemens Nixdorf ’s gener al ma na ger for service,
Gerha rd Radtke, decided to assemble a t en-person project t eam t o rest ru ctu re
headquarters, with the goal of reducing HQ
personnel by 50 percent .
Diagnostic: Septem ber–Decem ber 1991
Radtke encour aged th e redesign team t o look
at th e entire business, not just HQ overh ead,
in the crucial diagnostic phase. The redesignteam confirmed that from 1995 to 1996 the
service business would sta rt to lose money as a r esult of declining pr ices from
increased competition. Moreover, the team concluded that the proposal to
redu ce HQ per sonn el cost s was n ot su fficiently broad to stem futu re losses.
The t eam was, however, able to ident ify a broad a rea for r eengineering: the
servicing process in th e 11,400-person field-servicing orga niza tion. The goal
of the redesign was to create the most highly skilled, cost-effective, and
customer -responsive servicing company possible.
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The goal of th e redesignwas to crea te t he m ost h ighly
skilled, cost-effective, andcustomer-responsive servicing
company possible
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Siemens Nixdorf operat ed th rough 30 support center s in Germ an y and oth erinternational locations, with more than 20 customer call points in Germany
alone. After a customer called the nearest service branch, a reporting technician
would be dispa tched t o diagnose th e problem
and, in most cases, would return to the bran ch
to get t he pa rt s needed for an y major repair.
Although most equipmen t could be r epaired
within a day or two, the system was generally
inefficient. Each service branch was fullysta ffed with specialists cont inuously available
for telephone inqu iries. For insta nce, each ha d its own BS 2000 ma infra me-
computer specialist, though few BS 2000 inquiries came in each day. In
addition, only 10 to 12 percent of service problems were solved over the
telephone. And repair technicians often had to make two trips to a customer to
complet e a job – th e first for diagnosis, the second for repa ir.
The redesign team predicted that restructuring this cumbersome servicing
process would increa se service efficiency by 20 percent an d, at th e same t ime,improve customer responsiveness.
Clean-slate redesign: Janu ary–June 1992
The redesign team proceeded to reconfigure the service center. It reduced
the number of support centers from 30 to five and established a regional
ma na gement str uctu re. At t hese center s, the compa ny’s t op specialists from
various bra nches and h eadquar ters would work together for t he first time.
Most import an t, t he t eam intr oduced an ent irely new level of efficiency intothe servicing process, aiming at performing a high percentage of repairs
remotely. In approximately 80 percent of the inquiries, an expert could
diagnose th e problem over th e telephone a nd deliver t he n eeded part s to th e
customer th e following morn ing via a ser vice techn ician ’s car or overnigh t
air freight . As a result, most r epairs
co u ld b e t ak en ca re o f a f t e r t h e
customer ’s fir st ser vice ca ll.
However, the restructuring of theorganizat ion’s depth levers exten ded
far beyond t he r eduction of cust omer
service call points and the new support centers. The team also reduced the
ma na gement h ierar chy by two levels, crea ted a n ew team str uctur e for field
technician s, and esta blished a new su pervisory t echn ician position to provide
additiona l on-site customer support . Then th e team restructu red headquart ers,
reducing personnel from 1,600 to 800 in order to place expertise out in the field
an d in direct cont act with th e cust omer.
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Restructur ing a cum bersomeservicing pr ocess would increa seser vice efficiency by 20 per centan d, at t he sam e time, improve
cust omer responsiveness
In appr oxima tely80 percent of th e inqu iries, an
expert could diagnose th eproblem over t he t elephone
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But the rest ru ctu ring didn’t stop there. The inform at ion-technology system hadto be modified to tr ack cust omer-service requests a nd t o support th e logistics
of the new replacement-part delivery system. In addition, measurements
an d incent ives were cha nged to focus on qu ick customer problem resolut ion,
and a new ongoing survey tracked customer satisfaction. Finally, a major
comm un icat ions progra m was designed for employees a s well as customers to
un derscore th e n ew customer-service cultur e.
Preparing for change: August–October 1992
In order t o test the redesign and build support for change, Radtke launched onepilot of the redesign in Frankfurt and another joint-international pilot in
Brussels and Paris. The pilots produced a 35
percent reduction in personnel and an increase
in service-techn ician productivity from two to
four cust omer calls a day. Retu rn tr ips to the
regional office were largely eliminated by
loading the cars each night with the parts
needed for the next day, and the percentage
of problems solved remotely rose from 10 percent to over 25 percent. Mostimport an t, t he pilots rea ched t he redesign t eam ’s goal of redu cing overall
costs by 20 percent an d increasing customer sa tisfaction.
Rollout: N ovem ber 1992–Decem ber 1993
Because the redesign team did not limit its scope to the relatively narrow
headqua rt ers functions initially tar geted in t he diagnostic phase a nd instea d
restructured all the depth levers to support the redesign, the effort produced
profit and cost improvements in excess of 10 percent. The redesign project
reduced employee head count by approximately 20 percent through exit andseverance packages and voluntary retirement. Radtke anticipates that the
flexible service business infrastructure created by the reengineering project will
enable the company to service a range of products beyond their own equipment:
from equipment manu factured by oth er compan ies to periphera ls.
Championing the new design
The r eengineer ing effort s at BAI, Siemens Nixdorf Service, and AT&T were led
by committed CEOs and sen ior m an agers. But th e long – and often ar duous –process of reengineering can be very delicate politically, and each company
weath ered disru ptions t o varying degrees.
Convin cing the skeptics
At BAI, dedicated senior executives shared a common vision and desire to
succeed. They in tu rn assembled a str ong tea m of top perform ers with diverse
experiences a nd skills. BAI’s CE O u nder stood t he necessity of unfalter ing
leadersh ip. While he listened to mana gement’s concerns about t he chan ges in
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The pilots produced a 35percent r eduction in personnel
an d a n increase in service-technician productivity
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th e system a nd t he n ew teller r oles, he was dedicat ed to doing what ever it
took t o implement th e full redesign an d ma ke BAI compet itive. In addition,
he h ad a well-form ed idea of his own pa rt in t he p rocess: “My role was to act
as a defender, so th at daily urgencies didn’t get in t he way of th e tea m’s
work. At the same time, I kept the tension up by calling frequently and by
wandering a round.”
But not everyone was as convinced of the project’s success, at least not a t first .
Felice Parente, who was brought on board to manage the technology team,
was initially skeptical of the new design. Only when the prototype was
declared a success could Parente, bolstered by his newly-won assurance,
sta rt to persu ade his tea m of th eir fut ur e success.
Still, test ing the prototype was only th e first step in winning t he confidence of
middle ma na gers and front -line employees. Giochet ta believes tha t in volving
front-line employees in the design of the new system helped to createchampions for the project in the field. And training and communications
programs – like basic-skills training and brochures – also contributed to
boost ing employee confidence in the n eed for cha nge.
Powers of persuasion
Radtke ha d a s lightly more cha llenging political situ at ion a t Siemens Nixdorf
Service. To ensure the breadth and depth of the redesign project, Radtke had to
ma rsha l all his powers of persu asion. He needed t o convince the board of th e
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FIVE WAYS TO REDESIGN SUCCESSFULLY. . .
The following five factors common
to successful reengineering efforts
emerged from our study:
1. Set an aggressive reengineering
performance target. The target must span
the entire business unit to ensure sufficient
breadth. For example, aim for a $250 millionpretax profit increase to result from a 15
percent cost reduction and a 5 percent
revenue increase measured across the
business unit as a whole.
2. Commit 20 percent to 50 percent of
the chief executive’s time to the project.
The time commitment may begin at 20
percent and grow to 50 percent during
implementation stage. For example, schedule
weekly meetings that inform the topmanager of the project’s status.
3. Conduct a comprehensive review of
customer needs, economic leverage
points, and market trends. For example,
customer interviews and visits, competitor
benchmarking, analysis of best practices in
other industries, and economic modeling of
the business.
4. Assign an additional senior executive
to be responsible for implementation.
The manager should spend at least 50
percent of his or her time on the project
during the critical implementation stage.
5. Conduct a comprehensive pilot of
the new design. The pilot should test
the design’s overall impact as well as
the implementation process, while at the
same time building enthusiasm for fullimplementation.
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urgent need for dramatic change throughout the service business; service
mana gers of the ur gent need to speed up t he implementa tion of th e redesign;
and country managers and the Metal and Steelworkers Union of the urgent
need t o disru pt th e status quo. Radtke recalls, “Because of the no-layoff cultu re
an d th e organ ization’s decent ra lized nat ur e, th e most difficult cha llenge was
convincing the coun tr y mana gers a nd th e union t ha t t he need was t here and
th at cha nges would produce something bett er.”
Given the potent ial for r esistance, Radtke an d his tea m focused on comm un i-
cating openly and honestly with the organization as a whole. They told
employees how much they would have to reduce head count and why,
emph asizing the facts t hey ha d un covered dur ing the diagnostic pha se. Two
brochu res about th e new Siemen s Nixdorf were pr int ed, one for employees
and one for cus tomers ; meet ings were set up for managers and their
employees; an d basic skills tra ining progra ms were begun .
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. . . AND FOUR WAYS TO FAIL
There are any number of ways that a
reengineering project can fail. However,
our study uncovered the following four
particularly damaging practices:
1. Assign average performers. Companies
tend to enlist average performers – most
often from headquarters – for the project.Why? They reason that performance in the
business unit will falter if they assign top
performers to the redesign full time. For
example, one company assigned a mediocre
sales manager to head the project because he
wouldn’t be missed in the field. But because
this manager lacked the credibility and skills
to lead, the project ultimately failed.
2. Measure only the plan. Though most
companies invest a lot of resources in esti-mating the effects of a redesign on cost,
quality, and time before implementation,
they rarely follow through with a com-
prehensive measurement system that can
track the new process’s performance as it
is actually being rolled out. Without this kind
of measurement system, it is impossible to
tell if and why implementation is succeeding
or failing. A good tracking system
should measure location-specific results and
individual employee performance.
3. Settle for the status quo. Companies
generally strive to develop redesigns that are
radically new. But, more often than not, they
never translate their aspirations into reality.
Most companies have a difficult time
thinking outside their own skill level, organi-
zational structures, or system constraints.Moreover, companies that do come up with
innovative approaches find them watered
down by political infighting during the imple-
mentation stage. Incentives and information
technology, in particular, can be politically
sensitive areas.
4. Overlook communication. Companies
always underestimate the level of com-
munication that must occur during the
implementation stage. They tend to use onlyone method of communication, like memos,
speeches, or PR videos. More often than not,
they neglect the more time-consuming, but
effective, small-group format in which
employees can give feedback and air
their concerns. It is essential to create a
comprehensive communications program
that uses a variety of methods of communi-
cation. It helps to assign a top-level manager
to develop and implement an ongoing
communications program.
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Although pockets of resistan ce existed in th e field and t he u nion was initiallyagains t change, Radtke and the project team maintained their s t rong
commitment to implementation of the new vision. “The redesign was not
someth ing we were doing because we wan ted to do it ,” Radt ke explain s. “We
had to do it. We also knew that if we worked with people at all levels to
convince them that this could work,
we would ha ve their su pport .”
Radtke’s willingn ess t o keep lines of
communication open was critical todefusing th e political r esistan ce th at
might have developed. Another key
factor was h is un failing investm ent of time. “For th e last two year s, I ha ve
spent 60 percent of my time on t he r edesign pr oject, const an tly ta lking to
individual managers and to union leaders, as well as meeting with the
pr oject tea m every t wo weeks,” he explains. Rad tk e’s comm un icat ion
progra m quickly circulated critical inform at ion. At t he sa me t ime, Radt ke
says, “We have consciously built the morale of our workforce by defining a
clear vision of the more professional, more efficient, and more successfulcompany that we are becoming.”
S oothin g ruffled feathers
Like Radtke, AT&T’s Ha zar d resolved to dedicate his total effort to the project.
But he was equa lly aware – and war y – of th e risks, saying, “I did not wan t t o
be a cru sader who never came back from th e crusades.” When, for example, the
PBX man agement team began to understand
the radical nature of the redesign, it got cold
feet. Many managers could not believe thatimproved service levels could be delivered with
so large a reduction in resources. They were
worr ied tha t t he t eam ’s design would not
work; becau se of the breadth an d depth of the
project, the business might collapse if the new process were implemented.
Indeed, more than a few feathers were ruffled by the proposed changes.
Functional managers, for example, found their areas changing and the balance
of power shifting. Na tu ra lly, some resist ed the cha nges.
In th e end, th e cour age t o go forwa rd cam e from AT&T’s execut ive comm itt ee,
who made it clear tha t the PBX business had to improve. The pilot h ad proven,
after a ll, tha t th e redesign h ad th e potent ial to improve perform an ce great ly.
Pat Russo brought her senior managers together and made sure that they
understood that implementation would proceed immediately. While at times
privately fearful that the plan might not work, she publicly gave her
unequ ivoca l suppor t to the new approach , and she made success fu l
implement at ion a key measurem ent for h er field man agers.
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126 THE McKINS EY QUARTERLY 1994 NUMBE R 2
“The r edesign was notsomet hing we were doing
becau se we wan ted t o.We had to”
Definin g a clear visionof a more pr ofessional, more
efficient , and more su ccessfulcompa ny can build morale
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The radical changes of the reengineering project were initially met withresistance by the managers and employees who would have to make the
changes work. The clear comm itment of the leadership t eam was centr al t o
developing the necessary depth of commitment throughout all levels of
the organization. And the assignment of Karafin to oversee implementation
was an essential element in ma inta ining the commitm ent to the project. His
full-time at ten tion to th e r edesign project signa led the seriousness with which
th e business as a wh ole appr oached the reengineering project.
Becau se he was a n es t abl ished member of th e business u ni t ’s seniormanagement team, Karafin was able to garner and shore up support for the
project. And while Hazard was focusing on the day-to-day running of the
reengineering team and Russo was concentrating on the day-to-day running of
the salesforce, Karafin could concentrate on the broader issue of identifying
roadblocks t o successful implementat ion. With leadersh ip at all levels of the
organ ization comm itted to th e redesign, t he pr oject’s success was guar an teed.
Two-way communication
In any redesign project, senior executives must overcome resistance andconvince employees of the n eed for cha nge. Ignored or ill handled, th e politics
of redesign can doom a n oth erwise su ccessful pr oject. Th ink about wha t can
happen during a reengineering effort of sufficient breadth and depth: the
execut ive comm ittee ha s not rea lly bought into th e new design; employees do
not recognize the need for change; organizational rumors create anxiety and
affect productivity; employees feel disempowered and confused about how
their behavior will have to change; and valuable people begin to circulate
their r ésumés.
Once top-level managers have resisted the temptation to stick with the
sta tu s quo an d have dedicat ed themselves an d th eir best perform ers to the
project, they must take a final – and crucial – step. By communicating
openly, using a var iety of methods, man agers will encour age frank discussion,
build consensus and commitment, ensure a
common understa nding of the need for change,
foster part icipat ive problem solving, celebrate
and reinforce accomplishments, and make
cont inuous impr ovement a compa ny value.
The problem is that most executives think
that they can accomplish al l th is wi th a
mem o an d a slick video of the CE O ta lking about th e need for cha nge. But
this is only the beginning. Managers must approach communication as an
interpersonal activity. To memos and videos add a half-day off-site followed by
a casua l lun ch, sma ll group meet ings of employees an d th eir ma na gers, an d
town-hall meet ings with s enior execut ives. Man ager s mu st give employees
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THE McKINS EY QUARTERLY 1994 NUMBE R 2 127
The clear comm itmen t of th eleadersh ip team was centr al to
developing th e necessary dept hof comm itmen t t hr oughout alllevels of th e orga nizat ion
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sound reasons for and explanations of the new design, a forum for voicingconcern s, and feedback t o show th ose concern s a re being hea rd .
This k ind of two-way comm un icat ion will do far more t ha n a ny memo or video
can. It will help create champions of the new design throughout all levels of the
organization. And those champions are the final key to making long-lasting,
widespread impr ovement s a rea lity.
J im R osenthal is a principal an d Ju dy Wade a consult an t in McKinsey’s New
York office, and Gene Hall is a principal in t he St am ford office. This ar ticle is
reprinted here by special permission from the November–December 1993
issue of the Harvard Business Review . Copyright © 1993 by the President
and Fellows of Harvard College. All rights reserved.
HOW TO MAKE REE NGINEERING REALLY WORK