Expert Voice: James Champy on Re-EngineeringBy James Champy | Posted 02-22-2002
Expert Voice: James Champy on Re-Engineering
The work people do needs to be redesignedreengineered is what we call itin terms of processes rather than tasks or departments. That was the message Michael Hammer and I delivered nine years ago in our book Reengineering the Corporation. While the idea of reengineering touched a nerve and set off a wave of reengineering around the world, the impact was internal: By and large, the reforms ended at the company gate. That's no longer enough. The information technology revolution and the shifts in power among the major global economic players of the past five years demand that the advances of reengineering be extended to include all the stakeholders in the corporation: its managers, employees, customers, suppliers, partners, shareholdersand perhaps even its competitors.
I call this idea "X-engineering," and it can be defined as the art of using technology-enabled processes to connect businesses with their customers and other businesses to achieve dramatic improvements in efficiency, creating value for everyone involved.
"Okay, fine," you say, "but how does it affect me?" In terms of X-engineering, I think the CIO's role is, once again, to get line managers to understand the power and potential of technology. Sure, examples of companies using technology to cut costs are legion by now. But many managers still don't understand how IT can be used to promote efficiency at their own companieslet alone outside the company's walls. And so there are still yawning inefficiencies in the processes that connect companies, suppliers and partners, inefficiencies that can be eliminated by using technology to X-engineer how business is done.
Now, more than ever, it's up to you to get others within your company to understand how technologyand particularly the Internetcan really drive companies to a whole new level of efficiency. That's the first step for the CIOto get others within the company to understand the potential of technology. And the easiest way to do that is through examples. If you are in the healthcare industry and you can point out that 35 percent of your spending goes to administrative costs, most of which can be eliminated through X-engineeringdoing everything from creating single, unified patient records to holding auctions for hospital suppliesyou'll get people's attention. If you can say that healthcare company Owens & Minor Inc. was able to lower its prices and still boost margins by 20 percent through X-engineering, people will listen.
Step two is to have your company begin to act, to actually start to redesign all the processes that govern the way your company does business. In X-engineering, you examine those processes from beginning to endso you are looking both inside and outside your companyand decide what can be simplified or eliminated. That's what happens at Solectron Corp., a manufacturer of circuit boards, computers and routers for the likes of Cisco Systems Inc., Dell Computer Corp. and Nortel Networks Corp. Solectron is one of the best examples of X-engineering out there. Before anyone thinks of manufacturing anything, officials from Solectron meet with their partnersengineer-to-engineer, production supervisor-to-product supervisor, and so forth. They go over every step in the process, looking for what can be streamlined or done away with based on the goals of the business, not some old-fashioned assessment of how well people do specific tasks. Not only does this speed up the production process, it speeds up time to market. And that's no small thing in Solectron's business: Estimates are that the market prices for the goods Solectron makes shrink by 1 percent a week. A circuit board that sits in a warehouse or in the hold of a ship for a month can be underpriced by 4 percent by a newer equivalent. Even worse, it may be well on the way to the fire sale of obsolescence. In Solectron's case, time is truly of the essence.
At the core of X-engineering, then, is the need to understand the rationale for every step in a process. You need to really understand what customers expect of you, and start thinking about them not in terms of size or geography, but expectations. You need to do that because your solutionyour value proposition, if you willhas to respond to what your customers' expectations really are.
Although a lot of companies up to this point will say, "Well, we do some of that," I don't think companies do it anywhere near the degree that they should.
For the CIO, there are specifically four places where you can look to increase how efficiently your customer does things. Where does the inventory back upduring shipping, in the warehouse, on the production line? Where does the transaction slow downin the sales department or at the approval level? Where are the highest costs in the transaction? And how is the design process handledis everything sequential or are many disciplines working on it simultaneously? Once you figure that out, you need to get close enough to your customers so you really understand what they're going through, what their issues are and how they truly experience you. They'll be candid because the payoff for them will be a lower price from you. Just like you, customers want to pay less and make their own lives simpler wherever they can. So X-engineering begins with going deep into your customer's experience and expectations.
Your next step is to jointly redesign the process with your customernot just at the interface, but something end-to-end. Maybe it's not just how something is bought and sold, but really how it is ordered and inventoried. Look at all the tasks involved to see what can be eliminated and where there are redundancies. Look carefully, and start to experience what shared process design really looks like.
Then move onto suppliers. The truth is you have leverage here, especially if you engage your suppliers in X-engineering in a way that benefits them, and not simply by demanding every cent you save them. How do you engage them? I use the expression "fish upstream." Go back and look at the way the supplier buys and staffs, and also the way he supplies you. The farther upstream you can go with your supplier, the greater the chance that you can create a good deal for yourself and them, because something like 75 percent of costs are fixed very early in the design process. Go deep into the process with your suppliersgo way back and see whether there are ways to change the way a supplier buys or manufactures its products and services to see how those decisions affect you.
I actually believe that in the next two to five years we are going to go from individual companies engaging with their customers and their suppliers to having companies join together to form a network that will perform some common function. We have seen early examples of this with everyone from the Big Three automakers setting up a joint purchasing company to the metals industry coming together to source raw materials. There is simply no reason for every company to handle exactly the same function in exactly, or almost exactly, the same way.
In the financial services business, everyone buys and sells the same way. Each individual company doesn't need to create a separate function for doing it. One network could handle it for everyone. When that happens, there will be a huge opportunity for success, because companies will be free to concentrate on what they do besttheir core competency. In financial services, that might be excelling at securities research or designing the most innovative products or offering the best customer service. The idea of not doing anything but what you are best at is very liberating; it frees you to concentrate on your real competitive advantage.
But that is still a little ways off, in part because we haven't solved the problem of what to do about companies that are members of the buying or selling consortia cutting individual deals as well. If members of the consortium undercut the consortium, then eventually it will just fall apart. So certainly pay attention to what is going on in your industry, because eventually these networks will form and facilitate some of the kinds of process changes I'm talking about. But this is not the place to be putting a lot of resources right now.
The Role of the
The Role of the CIO
Can CIOs lead this effort by themselves? Of course not. CIOs can be agents of change, and CIOs at most companies were the principal agents of reengineering, at least in the first few years. But can you do it alone? Absolutely not. Can you be the leader of the effort to get the message out about how technology can improve efficiency? Yes. But in terms of making things change, probably not. You don't have that authority. There needs to be some other person within the business who really understands the results that can come from X-engineering. It does not have to be the CEO, but it does have to be someone with senior operating responsibility.
As CIO, you can and should seed the organization with ideas about the benefits that could accrue if you X-engineer, and you need to look for people on the business side who have some appetite or pain that they want to addresseliminating costs or speeding production, for example. You help that person, but someone else other than you most likely will be making the final decisions.
That's the general framework, but presenting this in a vacuum probably won't get anything done. What you need is some meaningful cause around which to orchestrate and rationalize the move to X-engineering. It has to be tied to a business purpose: increasing margins or gaining competitive advantage and market share, for example. That call to action could simply be the recession. There is nothing like recessionary pressure to make something like X-engineering extremely appealing.
Once you have an impetus, what do you do? Start inside your company. The principle reason for doing internal reengineering is to enable you to do the important stuff, and the important stuff is external. But if you don't have standards that work inside your firm, they'll never work outside. And by the way, there's a considerable amount of cost benefits that remain on the table, which further strengthens the argument for making sure you're pretty well reengineered. And by considerable, I mean considerable. My guess is that most companies have performed only 10 percent of the necessary reengineering work. There are probably an awful lot of costs you can still take out of your company.
What do I say to the CIO? Start the battle within your own company around standardization. Then move on to others, like your customers. If I go to my customers and I can show them a business benefit, I'll bet I can get them to standardize, and I think I can tell some of my suppliers what they have to do as well.
The final piece of the puzzle is the standardizing of the technology you and everyone else is going to have to do to make X-engineering a reality. And I will tell you that of all the arguments I made in the book, the argument that I make for standardization causes the most upset. That is understandable. Companies have billions of dollars invested in their technology. They don't want to change. But I am seeing, at least within some companies, a willingness to standardize internally.
Then I would try for some easy wins. Pick a couple of sophisticated customers and a couple of sophisticated suppliers and begin the process with themdon't try to do it with all of them at once. I think a lot of X-engineering efforts undertaken in the last couple of years were in some ways too ambitious. They tried to do way too much, and they didn't allow for adoption time. So I say be very realistic about adoption time, and don't try to change your whole industry at once. Start small, and go from there. When you do, you will really be forced to find out what your true distinctiveness is. When you strip away all the redundancies, what will be left will be your core competency. And in the end, you will deliver a much more efficient service.
There is no doubt that X-engineering is tougher than plain-vanilla internal re-engineering. It is tougher on the CIO and tougher on every business figure. But the payoff is so much larger. When an organization's processes are integrated with those of other companies, all the partners can pool their efforts and effectively become a new multicompany enterprise, far stronger than its individual members could ever be on their own. Most businesspeople, I suspect, think of the reengineering movement as a thing of the past. I think it has just begun. X-engineering is reengineering squared.
James Champy, whose Reengineering the Corporation, co-authored with Michael Hammer, sold 2.5 million copies, is chairman of Perot Systems Corp.'s consulting practice. His X-Engineering the Corporation will be published in March. Comments on this story can be sent to firstname.lastname@example.org.
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