Reengineering Case Studies

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Successful reengineering programs undertaken by large and small corporations in the past have these common themes:

1. A focus on processes rather than organizational boundaries
2. The ambition to create breakthrough performance gains
3. A willingness to break with old traditions and rules
4. The creative use of new information technology

Every company’s reengineering program must be unique if it is to achieve anything substantial. There are no guaranteed-to-work or step-by-step prescriptions that can be followed in reengineering.

Case Study #1–IBM Credit Corporation

IBM Credit finances the computers, software and services sold by IBM Corporation. Processing a finance application used to take between six days and two weeks as the application wound its way from the credit department to the pricing department to an administrator who wrote out a formal quote letter.

When IBM Credit realized that processing an application actually took only about 90 minutes and the rest of the normal processing time was spent with the application sitting on a pile on a specialist’s desk waiting to be looked at, they decided to reengineer the entire process.

Here’s what IBM Credit did:

The four specialists who previously processed the application were replaced by a generalist–called the deal structurer–who processed the application from start to end using templates on a new computer system that provided all the data and tools each specialist commonly used.

For unusual cases, the deal structurer can still call on the specialists to provide additional expertise. The specialist and the deal structurer then team up to develop a customized package as required. This happens only rarely, however.

The results of the reengineering program were:

Turnaround time was reduced from a typical 7 days to 4 hours.

Without any increase in staff numbers, IBM Credit has been able to achieve a hundred-fold improvement in productivity–it can now handle 100 times the number of credit applications handled before reengineering was undertaken.

Case Study #2–Ford Motor Company

In the early 1980s, Ford looked at its 500-person accounts payable department closely.

It was soon realized that the majority of each employee’s time was spent tracking down discrepancies between purchase orders, shipping receipts and invoices. Ford decided to reengineer the entire parts procurement process.

Therefore, the steps Ford took were:

An online database was created of purchase orders. Whenever a buyer issued a purchase order, it was entered into the database.

As goods are received at the receiving dock, someone checks the database. If the shipment matches a purchase order, it is received. If the shipment does not, it is not accepted. Therefore, there are no possible discrepancies between what was ordered and what was physically received.

As soon as the shipment is received, the database is updated and a check is automatically generated and issued to the vendor at the appropriate time.

The results of Ford’s reengineering program were:

Head count in Ford’s purchasing department fell from 500 people to 125 people; at the same time efficiency improved dramatically.

Study #3-Hallmark

Hallmark totally dominates the U.S. greeting card industry. Despite its success, the company decided to embark on a reengineering program with the objective of reducing the time lapse between noting a new niche market to serving it with a card on the retailer’s shelf. (At that time, it took 2–3 years to get a new line of greeting cards from concept to market. The company was making about 50,000 revisions to designs each year, and Hallmark had no accurate way of finding out what was selling well and what was not).

In essence, Hallmark looked to reengineering as a pre-emptive competitive strike rather than as a response to a bad situation.

To reengineer, Hallmark took these steps;

A reengineering team was set up, staffed by some of the company’s best and brightest employees.

Three key objectives were articulated:

1. To reduce new product development time to 1 year
2. Produce products buyers and retailers would love
3. To reduce costs with improvements in quality

100 employees were appointed to nine teams, each of which addressed a specific “leverage point”–the critical parts of the business that needed to be changed. These teams came up with 100 recommendations, 12 of which were chosen for a pilot project.

The pilot program:

1. Captured sales data at the point-sale.
2. Communicated actual sales data throughout the company.
3. Formed cross-department groups to develop new cards.
4. Eliminated entirely old style review processes.

Once it became clear the pilot program was generating impressive results, the reengineering initiatives were put into action company wide.

Case Study #4–Taco Bell

In 1983, the Taco Bell subsidiary of PepsiCo had fewer than 1,500 restaurants and $500 million in total sales. The company had stalled, with little or no growth over the previous five years.

To reengineer, Taco Bell did these things:

The customers were asked what they wanted. The company assumed they wanted bigger and better restaurants. The customers said all they wanted was “good food, served fast and hot, in a clean environment, at a price they could afford.”

A decision was made to reduce the costs of everything about the business except the cost of the food and its packaging.

A vision of the company as a leader in the restaurant business and not just the Mexican food business was articulated.

The management process was completely and dramatically reengineered–three layers were eliminated, including the entire “district manager” supervisory level. Every job in the system was redefined. Restaurant managers were given greater latitude to run their own businesses, and ultimately became “Restaurant General Managers.

Taco Bell reengineered the way its buildings were designed. Before 1983, the typical Taco Bell was 70 percent kitchen and 30 percent customer area. Since 1983, that ratio has reversed–new Taco Bells are 30 percent kitchen and 70 percent customer area.

Taco Bell reengineered its marketing to become value-driven.

Taco Bell developed ways to pre-cook the food centrally so that restaurants could concentrate on retailing rather than manufacturing.

Taco Bell introduced new management information systems using the latest technology to keep track of sales minute by minute.

The company introduced a new performance measurement called “the total share of stomach.” Instead of measuring success as market share of the fast-food market, Taco Bell set the goal of becomeing the value leader for all foods for all meal occasiond. That created a broader vision and stimulated the development of new innovations.

As a result of these reengineering programs:

Taco Bell has grown from 1,500 restaurants in 1983 to 3,600 in 1993.

Turnover has increased from $500 million in 1983 to $3 billion 10 years later–an increase of 22 percent per year.

Profit has grown at a rate of 31 percent per year over the same period.

The Four Key Elements

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The context within which executive decisions and actions take place will have a profound influence on making strategy work. The four contextual factors–change, culture, power and leadership–all need to be in sync before any strategy will work. To be able to make the right strategy work, you need to have:

1. The ability as an organization to manage change
2. A culture that values execution highly.
3. A power structure that supports execution of the strategy
4. Leadership that is committed to creating and following through on the strategy.

1 The ability to manage change

By definition, making strategy work requires that you manage the changes that occur in the marketplace and within your organization. This is often the single biggest obstacle to effectively executing a preferred strategy.

To manage change effectively:

1. Assess the size and content of any impending changes. Decide where the focus of any change efforts should rightfully be.

2. Estimate how much time you have available to execute your planned changes.

3. Decide whether the necessary changes should be made swiftly in one step, or if a sequential process of progressive steps wouldn’t be better.

4. Make someone responsible and accountable for the various elements of the change process. Be very definitive about this so there is no ambiguity.

5. Find practical ways to offset and neutralize any overt or covert resistance which might arise to the change initiative.

6. Monitor the changes as they’re implemented. If they’re not working as planned, make some tweaks and enhancements. Pay close attention to what’s going on.

Obviously the more complex the change that’s required or the shorter the time available, harder the change process becomes. When you have to actually do a number of change related tasks simultaneously, the potential for problems increases appreciably as:

Coordination and control become harder to track

People have insufficient time to do cause-and-effect analysis

Organizational learning may be restricted

There may be an inability to adjust performance targets

If at all possible sequential change is the preferred option. If you can find a way to break large changes down into smaller, more manageable pieces or elements that can then be changed one at a time, some of the problems previously mentioned will be eased or even avoided entirely. The only downside to this approach is sequential change takes time, and the longer you take to make a change, the more potential there is for additional, unanticipated factors to crop up. Furthermore, slow sequential change is fairly unexciting. It won’t be possible to make a big deal about launching a major change initiative when it’s done in a series of small steps. That may or may not be a factor worth considering.

2 A culture that values execution

Corporate culture makes a big difference in any organization’s ability to make strategy work. Culture is pervasive–it colors and influences everything that happens. If there is a culture of concealment in place, employees will be discouraged from doing what’s required. Equally, if the prevailing culture is one of discipline and getting things done, you can be more confident about executing the nominated strategy.

In simple terms, culture dictates the way things get done or the way people behave. Culture embodies the organization’s shared values and vision. Changing an organization’s culture is difficult, but it can be done. There are five rules or guidelines to keep in mind when it comes to changing a culture:

1. Make the reasons for change clear, compelling and agreeable to the key players. Explain why prior performance was poor, and use a cause-effect style analysis to generate consensus for making a change.

2. Focus more on trying to change behavior and less directly on trying to change the culture per se. As you change people’s behaviors for the better, you’ll find the culture changes correspondingly. Introduce new incentives that will reward the desired behavior. Put in place controls and organizational structures aligned with the new culture. This works better than appealing to individuals to make changes.

3. Remember effective communication is vital. Let people know where the organization is at in its evolution. Talk to people directly, face-to-face and in groups. Let everyone know what’s going on, and what remains to be done.

4. Do everything you can to reduce resistance to change. Within reason, focus on the positives and leave the negatives to die a natural death. Improving participation and involvement is an excellent way to offset any potential negativity.

5. Make cultural at a reasonable pace. If you try and change too many aspects of the culture simultaneously, you not only confuse people but also generate coordination and communication challenges that aren’t desirable. Trying to move too fast hurts the learning process and dilutes the impact of the changes made.

3 A power structure which supports execution

Power can be defined as the opposite of dependency. In any organization, the people who have the most power are those who monopolize something another person needs. The source of power might be information, resources, authority to act or whatever, but the basic principle is the person with power has access to the things other people want and need.

Power affects both strategy formulation and strategy execution directly. The people with the most power can make the choice of strategy they prefer, and the consequent execution needs will then flow directly from the choices made. It’s important to keep this in mind during strategy formulation. Any organization that does not take into account its own internal power structure when considering strategy will face difficulties and likely failure.

So what can you do to enhance your effective power to formulate and then execute your effective power to formulate and then execute your preferred strategy? Some ideas:

See if it’s feasible to form a coalition with those in power: where they will support your ideas in exchange for something they want. Often, if you sell another internal group on the merits of what you’re suggesting, you can form a larger power base that cannot be ignored.

Focus on the value-added, measurable results that will be delivered: that is, the positives of the cost-benefit calculations. It will always be easier to marshall support when the upcoming benefits are real and substantial. It also helps if there is a clear cause-and-effect relationship involved, and if the benefits are measurable rather than being soft or hard to quantify.

Make a direct approach to your organization’s senior leadership: those who have the power to change the prevailing internal power structure. If the CEO and the board of directors learn about clear and compelling benefits that could flow from a change of strategy, they will be obliged to look at the matter in more detail. If you have your facts right and can make a genuine case, they may even be able to help modify the prevailing internal power structure to facilitate your strategy. This is the ideal scenario, as the senior leadership will be anxious to change anything which dulls your organization’s competitive advantage.

4 Leadership committed to following through

Poor organizational leadership can stop or at the very least seriously impede strategy execution efforts. Effective business leaders generally bring the ability to meld together both hard and soft issues that will be critical to execution success. The more an organization has at stake, the greater the degree to that success will depend on the quality of the leadership provided.

The practical things you can do as a leader to enhance your organization’s ability to make strategy work are:

Have the ability to analyze, understand and then sell execution needs and decisions: throughout the organization as a whole. Leaders need to be advocates for the right decision that is not always going to be the most popular decision. When needed, leaders need to take steps to ensure the right things happen.

Develop incentives that are simultaneously alluring and aligned with strategy execution: since more than any other single factor, rewards send an unmistakable signal what is valued and what is not when it comes to executing a strategy.

Think strategically and long-term: to encourage the learning which will be required to underpin future performance.

Understand the internal power structure: and know how to encourage the learning which will be required to underpin future performance.

Be able to dictate the ideal pace of change: whether the situation calls for rapid and complex interactions or whether a sequenced, paced intervention would yield better results.

Be open-minded and have a high tolerance for situations of ambiguity and uncertainty.

Even out internal biases: so strategy formulation and execution is not totally dominated by just one unit or division.

People are vital to execution success. Clearly, their motivations, capabilities, commitments, and ability to create and follow through on plans of action will affect the success of execution efforts. It is important to focus on the climate leaders create.

–Lawrence Hrebiniak

Power is social influence, and that influence can materialize in different ways.

–Lawrence Hrebiniak

Business Strategy, Short-Term Objectives

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Each operating unit must create its own business strategy–focused on products, services and how it will compete in the marketplace. In practice, business strategy focuses on how to create and sustain a competitive advantage in the chosen industry. Business-level strategy must mesh and align with corporate level strategy if the organization is to perform well. To execute the business strategy, strategic plans and objectives must then be translated into short-term objectives the business unit is responsible to achieve. In parallel with this, appropriate short-term metrics must also be developed.

Developing an organizational structure is an essential part of making strategy work, but it’s only half the story. Integration and coordination is also required, even more so today when many enterprises have operating units located around the world. Coordination the work of these different parts of the business and getting everyone on the same page is absolutely vital.

Just as there are two generic types of organizational structure, there are three types of interdependence when it comes to the interaction between different units within an organization:

1. Pooled interdependence: where each business unit pretty much does its own thing and there is little need for the manager of one unit to know what’s happening at other units. A performance bonus might depend on the performance of the organization as a whole, so there will be some interest in happenings elsewhere, but to direct opportunities to influence other business units.

Manager
↓ ↓ ↓ ↓
A B C D

2. Sequential interdependence: where the work flows from one unit to another and so on until it goes to the customer. In this case, the people in unit B depend on unit A finishing the work before they can get started, and so forth. A problem at unit A will have an impact on units B and C.

Manager
↓
A→B→C

3. Reciprocal interdependence: where the people in each function or unit deal with the people in all the other functions or units all of the time. One unit can change the rules and affect everyone else at any time

A→ B
↓ ↓
C→ D

The way you get each business unit working together and coordinated than varies depending on the type of interdependence relationship that exists:

For pooled interdependence situations, you would use a set of rules or standard operating procedures to get everyone on the same page. If that fails, the fact there is a hierarchy means any issues that crop up can be dealt with definitively.

In the case of sequential interdependence, it becomes necessary to standardize rules and operating procedures. A coordination plan might need to be agreed upon between the heads of each operating unit to manage the flow of work and information, and to ensure the actions of one unit don’t impact negatively on the operations of another business unit. In addition, there will need to be some sort of agreement on the transfer pricing of products and services sold by one unit of the organization to another.

Reciprocal interdependence is much harder to coordinate and will require more resources. In this case, it’s vital that every unit shares information with the others as problems in one area can negate the work performed elsewhere. If at all feasible, face-to-face interaction should be used where all the key players regularly talk with each other and thrash out any problems that arise.

Note that the corporate strategy and the business strategy will affect the type of business structure that should be used to quite an extensive degree. The strategy will determine the optimum organizational structure, which in turn iwll impact on the best type of interdependence that will need to exist between the different units of the same company.

Choosing appropriate coordination methods will help avoid problems of ‘under-coordination’ by matching coordination methods with the task at hand. It will also help avoid problems of ‘over-coordination,’ such as setting up committees and other burdensome, time-consuming tasks when they’re not needed.

–Lawrence Hrebiniak

Corporate Structure, Integration

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Once the corporate strategy is clearly defined, an appropriate corporate structure can then be determined. Execution of the corporate strategy relies on the appropriate operating structure to be put in place. Usually, this will be a case of hitting the right balance between centralization and decentralization. You want each unit to be responsive to market needs but there will be some activities and functions which should be centralized to avoid the costs of duplication. Once the correct balance is determined, coordination between the units comes through effective integration and communication.

Structure is important to the execution of strategy at both the corporate and business levels. Structural choices are often complex, difficult and flavored by political rather than practical considerations.

There are three key structural issues which will affect an organization’s ability to execute strategy:

1. What are the comparative costs and benefits of different organizational structures: and what will be the best way to structure the business? There are usually a variety of different ways the organization can be structured:

By the processes used within the company

Around specific technology or skill sets

Using a divisional, product line or geographical breakdown

Along functional lines

There will be benefits and costs associated with each of these choices:

CEO

Engineering Marketing R&D Manufacturing

Costs

Coordinating work across functions can incur some quite significant costs.

Different functions will have different goals and perceptions as sometimes functional people get wrapped up in their specialist areas. It will be diffcult for everyone to keep the big picture in mind.

An internal bureaucracy may grow, slowing down the organization’s responsiveness to market conditions.

Benefits

Focuses on expertise required to actually create a critical mass.

Economies of scale become available through standardization.

Duplication of scarce resources is avoided using this structure

It will be possible and feasiblefor employees tobuild their careers by working in the different functional areas at different stages of their careers.

CEO

Division 1 Division 2

Costs

There can be duplication of scarce resources across the organization.

There is the potential for the loss of economies of scale, since every division will want to control its own resources.

Benefits

Effectiveness increases because of a focus on customers, products, geographic markets, etc.

Fewer coordination problems leading to enhanced responsiveness.

2. Should the organization’s management be centralized or decentralized: and how should decisions be made? Flat management structures are popular, but they do have some issues that need to be addressed:

Inertia is lost because people have to figure things out.

It becomes more difficult to tap into a superior’s expertise.

People may feel unprepared to accept more responsibility.

Communication can become stifled.

In practice, most organizations use a mix of centralized and decentralized management structures. Deciding on the size and role of the corporate head office then becomes a balancing act that is difficult to get right.

3. How should our corporate strategy impact on out corporate structure? In other words, the strategy you choose will not only determine what skills and resources you’ll need to develop, but will also influence what type of organizational structure would be best. To be more specific:

If you’re going with a low-cost strategy, a centralized functional business structure will offer the greatest efficiency and economies of scale.

If you’re going to focus on the customer, a specific geographic region or product line, the decentralized divisional structure would be the most effective. Your costs may be higher due to some duplication, but that will be offset by other benefits.

If you’re going with a differentiation strategy, you should run with the divisional organizational approach. One division can focus on one part of the market while a separate second division can focus on your second market segment.

If you’re simultaneously focusing in two strategies (perhaps a high-end product and a commodity product, or a worldwide product line and a country specific product), you might use a hybrid organizational structure where some functions are centralized and others are grouped into separated divisions. If handled well, this can give the best of both worlds.

Corporate Strategy

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To be able to execute effectively, the corporate strategy must be clear and focused rather than fuzzy or vague. The corporate strategy must be designed with implementation in mind, and dictates what businesses or industries should make up the corporate portfolio. The corporate strategy will of necessity specify the number of operating units in the organization and how overall resources will be allocated across these units.

Generally speaking, it’s much easier to nominate a commercial strategy than it is to actually make that strategy work. There are several reasons for this phenomena:

1. Managers are trained to plan: not to execute. Managers tend to know more about formulating a strategy than they know about executing one because this is what their training has focused on.

2. Some top-level managers assume they can nominate any strategy they like: and then leave it up to middle-level managers and lower-level employees to figure out the details. They turn execution over to the “grunts” and expect them to figure out any roadblocks which crop up,

3. The people who plan strategies are sometimes separate from those who actually do what’s required: meaning the “planners” may have no real hands-on feel for the problems the “doers” are striking.

4. Execution of a strategy usually takes much longer than formulation: making it harder for people to maintain a feel for the big picture picture issues.

5. Strategy execution is a process: as opposed to strategy formulation which is frequently a one-step deal.

6. Strategy execution involves far more people than strategy development ever does: muddying the waters somewhat.

Despite these challenges, effective execution always begins with a good strategy at both the corporate and business levels. A sound strategy is the driving force behind any attempt to execute or make that strategy work.

The differences between a “good” strategy and a “bed” strategy from an execution perspective are:

1. A good strategy at both the corporate and business unit levels is clear and focused: and based on some reality based thinking rather than head-in-the-clouds thinking. A good strategy will have:

A balance between cash generators and cash users

The right mix and positioning for business units

The optimum amount of risk

Something that will lead to competitive advantage

Awareness of the factors that affect the firm’s markets

Realistic and sound assumptions

Thoughtful and thorough analysis at its heart

2. A good strategy integrates at the corporate and business unit levels: so the role of the business is clearly and consistently discussed. This should head off any turf battles over resource allocations. When everyone knows whether their unit is to be treated as a “cash cow” or as a “growth initiative,” the appropriate performance metrics can also be agreed upon. To get your strategies to mesh at both levels, you’ll probably need to hold some planning sessions where all the issues get discussed openly.

3. A good strategy will define and communicate the operational components: that is, the strategy will be able to be translated into relevant short-term objectives and sensible short-term operational metrics.

Corporate Strategy

The preferred commercial strategy of the netire enterprise

Strategic objectives

Market share

Profitability

Shareholder value

Short-term metrics

Sales targets or quotas

Customer satisfaction measures

Cost controls or quality measures

Execution of the strategy will suffer if there are not short-term metrics specified by which people can gauge how they’re going. These short-term metrics must be measurable so that things can be improved and changed as required.

4. A good strategy will make appropriate demands on the organization: it will motivate the organization to develop the requisite capabilities so the strategy can be carried out effectively. Effective strategy always takes into account the organization’s resources, the demands of the global marketplace and what type of goals the organization’s are attempting to achieve.

Strategy is the essential ingredient, the driving force behind execution efforts. Sound planning is essential, then, at both corporate and business-unit levels.

–Lawrence Hrebiniak

Bad strategy begets poor execution. Ill-conceived strateges virtually guarantee poor execution outcomes. Execution truly does begin with a good strategy.

–Lawrence Hrebiniak

A popular mantra among a handful of managers I’ve known is that ‘good execution can overcome bad strategy.’ In my experience, that is rarely the case. Bad strategy can create major frustrations, as managers work long and hard hours in a futile attempt to execute that which is not executable. Hard work that produces no benefits is exasperating. Vague strategy and constant changes in strategy have the same frustrating results.

–Lawrence Hrebiniak

The short-term is a key to successful execution; managers routinely spend a lot of time there. It is necessary to have short-term operating objectives that provide measures or metrics that can be used to evaluate execution plans and efforts.

–Lawrence Hrebiniak

If corporate planning is poor or ill conceived, the effects on strategy execution and corporate and business performance are many and potentially fatal. Resources won’t be available or sufficient to sustain growth. Needed resources won’t be forthcoming for businesses that could potentially grow into stars in the corporate portfolio. Cash generators could be overtaxed or milked too extensively by the company, seriously hampering future cash-generation capabilities.

–Lawrence Hrebiniak

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