Academic journal article The McKinsey Quarterly

How to Make Reengineering Really Work

Academic journal article The McKinsey Quarterly

How to Make Reengineering Really Work

Article excerpt

Companies often squander their energies on attractive-looking projects that fail to produce bottom-line results

A study of reengineering projects in over 100 companies reveals how difficult these projects are to plan and implement and, more important, how often they fail to achieve real business-unit impact. The study identified two factors -- breadth and depth -- that are critical in translating short-term, narrow-focus process improvements into long-term profits. Successful projects at Banca di America e di Italia, Siemens Nixdorf Service, and AT&T demonstrate how companies can appropriately make their reengineering projects broader and deeper. Such efforts, however, if poorly managed, provoke organizational resistance. But such opposition can be overcome if committed managers approach reengineering as a painful but necessary disruption of the status quo.

IN 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 watch overall results decline. By now, paradoxical outcomes of this kind have become almost commonplace. A computer company reengineers its finance department, reducing process costs by 34 percent, yet operating income stalls. An insurer cuts claims-process time by 44 percent, yet profits drop. Managers proclaim a 20 percent cost reduction, a 50 percent process-time reduction, a 25 percent quality improvement, yet in the same period, business-unit costs increase and profits decline.

In short, too many companies squander management attention and other resources on projects that look like winners but fail to produce bottom-line results for the business unit as 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 results to the bottom line?

Three critical elements

Our research examined reengineering projects in more than 100 companies and included detailed analysis of 20 of these projects. It revealed how difficult redesigns actually are to plan and implement and, more important, how often they fail to achieve real business-unit impact. Our study identified two factors -- breadth and depth -- that are critical in translating short-term, narrow-focus process improvements into long-term profits. First, the process to be redesigned must be broadly based on cost or customer value in order to improve performance across the entire business unit. And the redesign must penetrate to a company's core, fundamentally changing six crucial organizational elements. These depth levers include roles and responsibilities; measurements and incentives; organizational structure; information technology; shared values; and skills.

Successful reengineering projects in diverse industries and locations demonstrate how companies can expand the dimensions of their reengineering projects. Senior executives at Banca di America e di Italia (BAI), AT&T, and Siemens Nixdorf Service, for example, set broad goals, from creating a paperless bank at BAI to becoming the most customer-responsive and skilled computer-servicing company at Siemens Nixdorf. They then completely restructured all organizational elements -- anything from the layout of BAI's branch offices to the skills required of AT&T's salespeople -- in order to implement the new designs successfully.

Ultimately, however, a reengineering project -- like any major change 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 management, the psychological and political disruptions that accompany such radical change can sabotage the project. …

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