Beyond reengineering.

The challenge of managing longer-term, far-reaching business transformation is considerable. Here are four key elements to address.

Business reengineering is the latest, and perhaps the most hyped, of a long line of silver management bullets that executives have shot at their companies to try to improve performance. Like many other initiatives such as total quality, empowerment, team-working, and downsizing, it hasn't really delivered in practice. The problem is not necessarily with the concept, but in failing to understand the role reengineering should play in keeping the firm focused on customers.

In our experience at IBM, firms that have used reengineering techniques successfully have interspersed them with periods of continual improvement. This process helps embed the insights gained from each phase of reengineering into the total culture of the firm -- "the way we do business around here." Provided that each iteration of this cycle is driven by greater insight into customer requirements, such companies gain a steadily broader, more holistic perspective on the way people, processes, and systems must interact in order to respond to changing business conditions. We call it the pathway to business transformation.

Many major management initiatives (including reengineering) have failed because they do not take place in the correct strategic context. Too often they are driven by tactical necessities, such as cost reduction or downsizing, and fail to address the fundamental question that must lie at the heart of long-term business survival: "Are we giving our customers what they want?"

Increasingly, achieving this goal at the end of the 20th Century will mean a move away from the invention and mass-production strategies of earlier years toward a radical cross-functional integration of people and processes, and a mass customization of product and service offerings.

The challenge of synchronizing and coordinating such far-reaching, systematic change is considerable. Many firms are unsure where to start, which levers to pull, or what the outcomes should be. We have identified four key elements to be addressed: business processes, organizational culture, information technology, and asset utilization.

Business Processes.

This is where a customer-value orientation starts, driving business results through improved cycle times and improved quality. In a mass-customized company, processes must be redesigned in such a way that customers perceive unique capability and variety in the firm's products. Each time customers encounter the company, they should effectively receive personalized solutions to their needs. In order to do this, the customer-facing personnel must have instant access to key information and be empowered to find flexible solutions.

Companies that see this as a sentimental wish list should take a cold, hard look at their competitors -- like the insurance firm that was forced to reduce its policy registration time from 10 weeks to three to four days, just to stay in business. Reengineering must permanently redesign processes to remove work (and cost) for good. In this case, despite the pain, the insurance company found that satisfying its customers reduced its costs by 75%.