Reengineering: The Innovation that Revolutionized American Business

I.                   FACTS:

The Issues

The Reengineering case addresses many issues central to Corporate Strategy and the management of innovation. The major issues include:

• Sources of innovation
• Recognizing an innovation’s potential
• Complementary assets
• Implementation of new ideas/adoption of new technologies
• Exploitation of comparative advantages
• Standards and competing technology
• Co-opetitors

In this case, sources of innovation included CSC Index’s clients and its ongoing research, as well as the close relationship it maintained with MIT. Through these sources, CSC Index was able to identify trends and to capitalize on them before their competitors could do so. The relationship with MIT allowed Index to stay abreast of changes in technology and to tap into sources of academic knowledge. The creation of PRISM with Michael Hammer was another way CSC used research and academia to generate new consulting innovations.

Recognizing the potential of reengineering as an innovation happened at several levels. Although Hammer had developed the basic principles of reengineering in the late 1970’s and had coined the term in 1987, he did not widely publicize the concept until economic conditions practically forced companies to rexamine their business processes. In addition, Champy and CSC Index realized early on that reengineering was an ideal consulting innovation in that it required examining all aspects of a given business, which in turn guaranteed long consulting engagements.

Hammer and CSC Index teamed up in order to gain complementary assets. Hammer was a relentless marketer and preacher, but without CSC’s backing he most likely would not have had access to the large corporate clients which sustained his research. CSC also lent credibility to Hammer, which he needed in order to turn his idea into a marketable product. Champy and CSC also benefited from the partnership. Without the insight and evangelical rhetoric of Hammer, it is doubtful that CSC would have been able to sell reengineering projects to its clients.

The systematic marketing of reengineering was critical to the success of Hammer and CSC Index. First, Hammer published his reengineering article in theHarvard Business Review. This lent academic credibility to the the concept and sparked interest in reenginerring among senior executives of Fortune 500 corporations. The marketing of reengineering kicked into high gear following the publication of Hammer and Champy’s book. This effort succeeded, at least in part, because there were powerful incentives for corporations to implement reengineering. Some of the reasons for the concept’s quick adoption included: the simplicity of the idea (on its surface), the success several prestigious firms had achived by implementing reengineering (even if under a different banner), economic conditions which mandated controlling costs and improving productivity, and the ‘iron triangle’ or reengineering advocates.

In order for a firm to produce an innovation, the firm must first generate an innventive idea and then leverage its comparative advantages to commercialize the product or concept. CSC Index tirelessly exploited the advantage it achieved by being the first consulting firm to complete reengineering projects. For several years, CSC’s ‘first-mover advantage’ enabled it to generate explosive growth and gain widespread name recognition. At the same time, Hammer exploited his newfound popularity by charging $2,000 per person for his inspirational seminars. He also produced workbooks, videos and other reengineering help aids.

The fact that reengineering was such a good deal for the consultants led to it becoming the industry standard for consulting projects in the early 1990’s. Soon after CSC Index started to successfully market the concept, all the major management consulting firms jumped on the bandwagon and devised their own variations of business process reengineering. This was both good and bad for CSC Index. It was good in that reengineering expanded the entire market for consulting services, but bad in that reengineering quickly became a commodity.

The entire case highlights the importance of co-opetition. CSC cooperated with MIT in order to gain access to new ideas. Michael Hammer partnered with CSC cooperated in order to gain complementary assests. CSC publicized reengineering in the hopes that its competitors would adopt the concept and thereby generate additional enthusiasm for reengineering in Corporate America; CSC felt that it could leverage its first-mover advantage to retain its leading market share in this category. Without this web of competition and cooperation, reengineering might never have been successfully commercialized.

VIDE Analysis

A Value, Imitability, Differentiation and Extendibility (VIDE) analysis on reengineering is useful to understanding this case:

Customer Value - Reengineering can offer enormous value to customers. It can make the difference between success and failure for a company. Reducing costs, decreasing cycle times, increasing productivity and customer satisfaction all add value to the company’s bottom line.

Imitability - Reengineering, like many service ideas, is easy to imitate. It is an idea, not a unique product. As a result, it would be very difficult to protect with copyrights or patents. This fact means that innovators of ideas must move quickly to capture rents from the adoption of a new idea.

Differentiation - CSC Index’s primary differentiating factor was its first mover status in the market of reengineering. However, it gradually lost this advantage as reengineering was imitated and modified by other consulting firms.

Extendibility - There were possibilities to extend and expand reengineering. The process could be used for manufacturing and well as service organizations. International growth was also an option. Reengineering was also the basis for complete information systems solutions like ERP software packages – the reengineering movement led to the emergence of SAP, Baan and PeopleSoft.

What Happened

After separating in 1994, both Hammer and Champy came out with their own sequel books on reengineering in 1995. Hammer authored Beyond Reengineering and Champy published Reengineering Management.

CSC Index attempted to use its experience with reengineering to market another innovative concept. In 1995, two CSC Index consultants, Michael Treacy and Fred Wiersema published The Discipline of Market Leaders. The book detailed three ‘value disciplines’ that firms can adopt to become leaders in their chosen markets. Business Week published an article alleging that CSC Index used third parties to purchase 10,000 copies of the book in an effort to get the book on The New York Times best seller list. The tactic was successful and the book spent 15 weeks on the list. The article, however, tarnished the firm’s image. Speaking engagements were cancelled, and CSC Index lost several major clients.

CSC Index also went on to offer consulting services for implementation of ERP software packages.

James Champy left CSC to become Chairman of Consulting for Perot Systems. In 1997, he gave an interview stating that reengineering, contrary to popular opinion, was not dead:

People often say to me: you’ve been at it for 5 or 6 years, isn’t the age of reengineering over? My answer is: The age of reengineering is just beginning. We’re just starting to change our work models and the way we think and operate. We have at least 5 to 10 years of major change ahead in the way we operate our businesses and the way we think about the nature of work.

Clearly, there is still a need for consulting firms that perform reengineering services. As of late 1998, Ford Motor Company had 5 or 6 major reengineering projects still under way.

II.                PROBLEMS:

PROBLEM 1: Did CSC Index make the right decision in publicizing reengineering? What were the costs and benefits associated with this decision? Would the firm have been better off by only marketing the concept to CSC clients?

ANSWER: CSC Index made the right decision in publicizing reengineering, The concept of Reengineering was not new.  The real creators of reengineering weren't consultants or academics. They were real people with real problems to fix. Inside companies like Ford, Hewlett-Packard, and Mutual Benefit Life, managers were experimenting with new uses of information technology to link processes that cut across functional boundaries. Hammer had begun to formulate ideas about restructuring companies in the mid-1970s while working with the Index Group on information system consulting projects for Citibank and Xerox.  At that time, he says, “most organizations were using computers to automate antiquated paper practices.” They were merely paving cow-paths." Hammer believed that applying technology solutions to current business practices had built-in limitations in what it could accomplish.  To achieve more dramatic results, companies needed to rethink the business processes themselves and then determine how to apply technology to the redesigned organization. What CSC Index did was to capitalize on the concept, named it and became the forerunners of reengineering.

As to cost - Soon after CSC Index started to successfully market the concept, all the major management consulting firms jumped on the bandwagon and devised their own variations of business process reengineering.  By sharing their ideas, they allowed other consultancy firms to compete with them. CSC Index’s primary differentiating factor was its first mover status in the market of reengineering. However, it gradually lost this advantage as reengineering was imitated and modified by other consulting firms.

As to the Benefit – Competitors would adopt the concept and thereby generate additional enthusiasm for reengineering in Corporate America.  CSC Index, being the first to recognize the new concept of reengineering was guaranteed long consulting engagements with companies in the top Fortune 500. CSC’s ‘first-mover advantage’ enabled it to generate explosive growth and gain widespread name recognition

Would the firm have been better off by only marketing the concept to CSC clients – No. Anyone in the business would have come up with the concept.  The new trend in business was having computers as business tools and information technology was cutting across functional boundaries.  A symbiotic relationship existed with CSC and its partners.  CSC cooperated with MIT in order to gain access to new ideas. Michael Hammer partnered with CSC cooperated in order to gain complementary assests. CSC publicized reengineering in the hopes that its competitors would adopt the concept and thereby generate additional enthusiasm for reengineering in Corporate America; CSC felt that it could leverage its first-mover advantage to retain its leading market share in this category. Without this web of competition and cooperation, reengineering might never have been successfully commercialized

PROBLEM 2: Why did companies hire consultants who often had little or no experience working in their specific industries for reengineering projects?

ANSWER: Reengineering is an idea capitalized by CSC.   It is an idea, not a unique product. As a result, anybody could use it, modify it or innovate to come up with solutions for businesses.  Other consultancy firms were able to jump into CSC index’s success because it was simple and easy to imitate.

PROBLEM 3: Were Hammer and Champy the right people to develop and commercialize this innovation? Could it have been done better?

ANSWER: Hammer and Champy were the right people to develop and commercialize this innovation. Although the idea was not theirs alone, they recognized it as a new management concept and successfully publicized it. They continued to develop their idea by cooperating and sharing their knowledge and resources.

PROBLEM 4: Is reengineering more than just a passing fad? How is it different from other business concepts like TQM?

ANSWER: No reengineering is here to stay.  With the advent of new technology, there will always be radical change in how we run our operations.

(1) Organize primarily around process, not task. Base performance objectives on customer needs, such as low cost or fast service. Identify the processes that meet (or don't meet) those needs -- order generation and fulfillment, say, or new-product development. These processes -- not departments, such as sales or manufacturing -- become the company's main components.

(2) Flatten the hierarchy by minimizing subdivision of processes. It's better to arrange teams in parallel, with each doing lots of steps in a process, than to have a series of teams, each doing fewer steps.

(3) Give senior leaders charge of processes and process performance.

(4) Link performance objectives and evaluation of all activities to customer satisfaction.

(5) Make teams, not individuals, the focus of organization performance and design. Individuals acting alone don't have the capacity to continuously improve work flows.

(6) Combine managerial and non-managerial activities as often as possible. Let workers' teams take on hiring, evaluating, and scheduling.

(7) Emphasize that each employee should develop several competencies. You need only a few specialists.

(8) Inform and train people on a just-in-time, need-to-perform basis. Raw numbers go straight to those who need them in their jobs, with no managerial spin, because you have trained front-line workers -- salesmen, machinists -- how to use them.

(9) Maximize supplier and customer contact with everyone in the organization. That means field trips and slots on joint problem-solving teams for all employees all the time.

(10) Reward individual skill development and team performance instead of individual performance alone.

Re-engineering is the basis for many recent developments in management. The cross-functional team, for example, has become popular because of the desire to re-engineer separate functional tasks into complete cross-functional processes. Also, many recent management information systems developments aim to integrate a wide number of business functions. Enterprise resource planning, supply chain management, knowledge management systems, groupware and collaborative systems, Human Resource Management Systems and customer relationship management systems all owe a debt to re-engineering theory.

Business Process Reengineering is also known as Business Process Redesign, Business Transformation, or Business Process Change Management.

Total Quality Management (or TQM) is a management concept coined by W. Edwards Deming. The basis of TQM is to reduce the errors produced during the manufacturing or service process, increase customer satisfaction, streamline supply chain management, aim for modernization of equipment and ensure workers have the highest level of training. One of the principal aims of TQM is to limit errors to 1 per 1 million units produced. Total Quality Management is often associated with the development, deployment, and maintenance of organizational systems that are required for various business processes.