Reengineering the Corporation

A Manifesto for Business Revolution

by Michael Hammer and James Champy

Copyright © 1993 by Michael Hammer and James Champy. Summarized by
arrangement with HarperBusiness, an imprint of Harper Collins Publishers Inc.
272 pages

Focus Take-Aways
Leadership & Mgt. • Reengineering was not merely a corporate fad of the 1990s. It remains an
Strategy important, necessary business activity.
Sales & Marketing
• Companies that undertake reengineering must be willing to discard old ways of
Corporate Finance
working and replace them with new approaches.
Human Resources
Technology & Production • Reengineering insists that processes follow a natural order and an economic logic.
Small Business • Reengineering does away with Adam Smith's division of labor, replacing
Economics & Politics segmentation with integration.
Industries & Regions
• Reengineering empowers workers, but it does hurt some people.
Career Development
Personal Finance • Companies cannot retreat in the face of resistance, but must push reengineering to
Concepts & Trends its conclusion in order to reap its benefits.
• Reengineering requires total commitment from top management – lower echelons
do not have the power to break through the organizational boundaries.
• Reengineering addresses processes, but management must not ignore values.
• Reengineering’s success stories include IBM, Kodak, Ford and Duke Power.
• Reengineering must be a continuing and recurring corporate undertaking.

Rating (10 is best)

Overall Applicability Innovation Style

8 9 9 7

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 Relevance

What You Will Learn

In this Abstract you will learn: 1) What reengineering is all about; 2) Why it might
be important for your company; and 3) Why it is not a dusty old fad from the past
millennium.

Recommendation
Authors and reengineering consultants Michael Hammer and James Champy begin their
book rather defensively by insisting that reengineering is not merely a forgotten fad of the
1990s. And they may be right, particularly given their insistence that companies must be
totally, absolutely willing to discard the old and replace it with the new. The authors make
dramatic claims for the potential of reengineering, and highlight interesting victories
– such as Kodak, a company rarely cited as an example of success. The book presents
reengineering as a simple, straightforward way to view business processes, figure out
how to make them more rational and economical, and then implement necessary changes.
The authors made a splash by labeling this approach as reengineering in the 1990s. The
term became a euphemism for firing people in droves, then fell into discredit. This update
may be intended to rescue the concept from its bad image, but it doesn’t quite succeed.
In the new millennium, companies deal with complex, costly processes by outsourcing
them, yet the word “outsourcing” does not yet appear in this book’s index. Such time lags
aside, getAbstract.com finds this business landmark well worth reading. After all, it’s the
management Bible of the ’90s. Many of its hoary old verities still have the ring of truth.

Abstract
“To reengineer
a company is to Far from a Fad: Reengineering for the Twenty-First Century
take a journey Conventional wisdom regards reengineering as an irrelevant fashion that peaked in
from the familiar
the early ’90s. But, far from being a mere fad, reengineering is an enduring tactic.
into the unknown.
The journey Reengineering is still an important component in the success of such companies as IBM,
has to begin American Express, American Standard, Ford, Chrysler, Texas Instruments and Duke
somewhere and Power. Without reengineering, the U.S. economy would be characterized by high prices,
with someone.”
low quality and stodgy, noncompetitive companies. Only reengineering has made it
possible for U.S. firms to maintain healthy profit margins despite falling prices.
Why then is reengineering often criticized? The negativity may be a backlash against
its remarkable success, which generated a kind of bandwagon. Reengineering became a
“‘Reengineering,’ buzzword without much meaning. Thus, when people began to criticize reengineering,
properly, is the
fundamental
they often meant some inadequate, poorly conceived copycat that actually was not
rethinking and reengineering at all.
radical redesign
of business Reengineering’s first wave eliminated the barriers that prevented one part of a corporation
processes to from communicating or working with another part. Now, reengineering dissolves the barriers
achieve dramatic between corporations. Clearly, reengineering is not passé. IBM went through an extensive
improvements in
critical, contem-
reengineering in the 1990s, and has begun to reengineer again in order to “Web-enable.”
porary measures
of performance, The Continuing Crises
such as cost, Ironically, American companies need reengineering because their old way of doing
quality, service
and speed.”
business succeeded. American corporations profited by implementing the ideas of
Reengineering the Corporation © Copyright 2005 getAbstract 2 of 5
 Adam Smith, the preeminent economist who first outlined the principle of the division
“The reality that
of labor. Smith observed that by dividing the parts of a manufacturing process into
organizations several steps and giving each worker responsibility for a particular step, a pin maker
have to confront, could make far more pins than if each worker made a complete pin. Most American
however, is that corporations are organized based on this principle. However, this structure has a price.
the old ways of
doing business By dividing processes into steps and assigning a step to each worker (or each department),
– the division corporations encouraged people to focus on discrete parts of the production process, not
of labor around on the whole process and its end result. One great, fatal consequence of this approach
which companies
have been
was to increase the distance between management and the customer. That has to change
organized since due to three important trends:
Adam Smith first
articulated the 1. The customers are in control – From the end of World War II through the early 1980s,
principle – simply companies operated in a relatively easy demand environment. The market absorbed
don’t work whatever products companies produced. That has changed. Now, production capacity
anymore.”
exceeds demand, and customers push for quality and economy.
2. Intense competition – In the old days, competition was straightforward. A company
could succeed with an adequate product at a good price. Now competition is more
intense and multifaceted. Take the finance industry, where new competition has
come not only from offshore financial institutions but also from manufacturing and
service companies.
3. Constant change – Change is becoming the only consistent factor in business life.
Business challenges include changing currency rates, changing customer preferences,
“Reengineering is
not restructuring
the emergence of start-ups and the redefinition of businesses and industries.
or downsizing.”
Formerly, corporate strategy seemed to be the root of business problems and the path
to success. Companies could strategize their way out of problems. However, the real
difference between winning and losing isn’t strategy, it is better business processes.
Bluntly, winning companies work better than losing companies. Today’s winning
companies have overcome the problems created by Adam Smith’s division of labor.

Reengineering and Change

Reengineering is “the fundamental rethinking and radical redesign of business proces-
“No company ses to achieve dramatic improvements in critical, contemporary measures of perfor-
can reengineer mance, such as cost, quality, service and speed.” Consider the most important words
all its high-level
in that definition:
processes
simultaneously.”
• Fundamental – Fundamental means basic. To reengineer, you must ask the most
basic questions about your business. Over time, most businesses develop certain tacit
rules and assumptions that govern how they organize their processes. To reengineer
processes, ask why they are the way they are. The most basic questions matter most.
• Radical – Radical comes from the Latin word radix, or root. Reengineering is about
getting down to the roots of your business, starting with a blank slate, beginning not
only from the ground, but from below the ground, and then building up.
• Dramatic – Reengineering is not about change at the margins. It means wiping away
“Businesses can old, established practices and replacing them with something new and necessary.
simultaneously
reap the
Great companies abandon what works to take up something that works even better.
benefits of • Processes – Most businesspeople tend to look at jobs or at people or at structures,
centralization and but not at processes. All too often, however, the end product of the process does not
decentralization.”
create value for the customer. Reengineering addresses the entire process with a
particular focus on the output and customer value.
Reengineering the Corporation © Copyright 2005 getAbstract 3 of 5
 Several themes recur in reengineering, including:
“The process-
centered • Process – Ford, IBM Credit and Kodak remarkably improved their business operations
organization is by reengineering whole processes, despite segmented organizational boundaries.
both the end
and the • Ambition – Ford, for example, could have made a modest 20% improvement in its
beginning of the operation, but opted instead for an 80% improvement.
reengineering • Break the rules – Successful reengineering means disregarding traditional
road.”
assumptions about processes and their step-by-step deployment.
• Information technology – Use IT to create new ways of working.

Rethinking the Business Process

Reengineering has several characteristic features:
• Combining jobs – Most reengineered processes reverse the specialization of the
assembly line and integrate distinct steps into one process.
“As few people as • Workers become decision-makers – Decisions become part of the task. Workers take
possible should
be involved in the responsibility for decisions that once were under management’s control.
performance of a • The natural order – Many rules, regulations and process steps are antiquated habits,
process.” the legacy of old assumptions and old traditions. Reengineering looks at what steps
are necessary, in what order, and structures processes accordingly. Kodak’s old
process allowed manufacturing tool design to begin after final product design. With
reengineering, tooling engineers start working when the outlines of the product
design are clear. Because of this “delinearization,” tooling engineers now have
design input.
• Multiple versions of processes – Reengineering works against standardization.
Traditional process design accommodated mass production, in response to a
“Reengineering
mass market. That mass market no longer exists. Customers increasingly demand
cannot be specialized attention, individualized products and multiple choices that simple,
entrusted to the uniform processes cannot provide. Given multiple versions of a process, companies
semicompetent,
can respond to a basic fact of business life: not all jobs require the same degree of
the hangers-on
with nothing attention. Companies with only one process mode waste resources because they must
better to do.” build capabilities and costs into that process that are only occasionally necessary.
• Logic determines where work happens – In the reengineered corporation, economic
logic determines who performs a process. This may mean giving more work to
suppliers. Navistar International allows its supplier, Goodyear, to handle tire
warehouse management and to deliver tires as needed. Navistar simplified its process
by eliminating the management of its tire inventory.
• Reduced checking and control – Reengineering relies on economic logic to determine
what checks and controls are necessary. Traditional processes often include checks
and controls without economic value. Some degree of control is necessary, but too
“Reengineering…
demands much of a good thing is still too much. Some car insurance companies have found
the direct that it makes economic sense to process small claims without adjusters. Instead of
and personal having an adjuster review each claim, the companies work with approved body shops
involvement
of senior
and rely on them to do only the work needed. The insurance companies have not
management. totally eliminated control, because they review the trend in each body shop’s billings
Just as it cannot compared with other body shops. Insurance companies see the possibility of short-
bubble up from
term abuse as more than compensated by a claims process that gives customers what
the bottom of
the organization, they need when they need it and avoids costly adjusters.
reengineering • Minimal reconciliation – Reengineered companies minimize the need to reconcile.
cannot be For example, consider Ford’s reengineered accounts payable process. Ford used to
delegated.”
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 contact vendors at three points. The purchasing department contacted vendors with
the purchasing order. The receiving dock contacted vendors with paperwork upon
receipt of materials. Finally the accounts payable department contacted vendors in
the invoicing process. Reengineering omitted invoicing, cutting out a contact point.
• A case manager – Many companies put customer service representatives in charge of
customer problems. From the customer’s perspective, the case manager or empowered
customer service representative is performing the entire process. In fact, the case
manager may integrate numerous complex processes to present a seamless facade.
• Combining centralization with decentralization – Using IT, companies can give
individual units full autonomy while still exploiting economies of scale. One bank
“The new wave of
Internet-enabled established a $20 million credit limit for a particular customer, and told each product
reengineering is division to enforce the limit. Each division did. None lent the customer more than
breaking down the $20 million, but each lent $20 million to the customer. As a result, when the customer
walls that separate
corporations from went bankrupt, the bank’s exposure was far above management’s $20 million cap.
each other.” After reengineering, all the units of a bank can share a single customer database.
Each operating unit inputs everything it knows about each customer, and every unit
can use the data to guide its activities.

Finding Reengineering Opportunities, Avoiding Reengineering Mistakes

How do you decide what processes to reengineer? A corporation could never reengineer
all of its processes at the same time. To set your priorities for process reengineering,
ask these questions:
• What process is most inefficient, ineffective or broken?
• What process has the greatest capability to affect customer satisfaction?
• What processes seem most amenable to redesign?
As part of setting these priorities, benchmarking may stimulate a reengineering team’s
“We say that ideas. However, it has a pitfall. Because you look at what others are already doing, it can
more than 50%
of reengineering limit your ability to think about entirely new, radical processes. Benchmarking is not the
efforts have failed, only potential pitfall. Several common mistakes cause reengineering initiatives to fail,
not that they including:
inevitably will fail.”
• Fixing instead of changing processes – Improving a process may seem easier than
discarding it and beginning from scratch, but incrementalism is a recipe for failure.
• Failure to focus on process or focusing only on process – Reengineering focuses
on process, but changing processes requires changing job design, organizational
structure and management systems.
• Failure to consider beliefs and values – Change is difficult; people change reluctantly.
New management systems must encourage the values that reengineering requires.
• Quitting before the goal – Some companies lose heart and lose hope when they see
the magnitude of the changes that reengineering requires. To benefit, persevere.

About The Authors

Dr. Michael Hammer, an expert on reengineering, was named by BusinessWeek as one
of the four preeminent management gurus of the 1990s. James Champy is chairman of
Perot Systems’ consulting practice.

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