Macro Reengineering of Core Work Processes (continued)
Motivations for Reengineering

The concept gained popularity as the right cure-all that appeared at the right time and got an extraordinary amount of promotion. In “It’s Totally Radical,” an article published in the Journal of Business Strategy, Ray Manganelli, president and CEO of Gateway Management Consulting, explained that in the late ‘80s and early ‘90s, “business executives have had to adapt to a new economic world order. Consumer demand has plummeted, competition has increased and the ability to raise capital by diluting equity has slowed markedly.”

Difficult and dangerous as reengineering might have seemed, given the tenor of the times, leaders were willing to try this innovative concept that held out the appealing promise of “starting fresh.” Major corporations made intensive efforts toward reengineering hoping that it would be the route to future success in this new and highly competitive marketplace, where product costs could mean the difference between success and failure.

Research has shown that 88 percent of the large corporations in North America were already implementing business process reengineering (BPR) in 1993, at an average rate of four projects per firm. As some of the most competitive companies in the country began launching reengineering projects, many others, rightly or wrongly, jumped on the bandwagon. The notion of tapping the combined talents of corporate strategists, technologists and human relations experts and bringing hard and soft skills to bear on complex issues, made great sense. But too many “me-too” projects were launched without leaders doing the proper homework or preparation.

Depending on the source and the point in the decade, somewhere between 50-85 percent of reengineering initiatives launched by the mid-90s were deemed unsuccessful.  Yet some 70 percent of the companies who said they had reengineered were planning to invest more in their reengineering efforts in the last years of the century. A survey by Deloitte & Touche, cited in the March 1998 issues of National Real Estate Investor, found that nearly 75 percent of 400 large North American firms were planning to increase the number of BPR projects in 1995 and 1996. According to an April 1997 article in  Computerworld, “Reengineering Needs to Get Quicker and Leaner, but in Today’s Rapid-Fire Business World, It’s More Vital Than Ever,” the Gartner Group projected the reengineering market to grow by 20 percent per year through 1999, with businesses investing some $8.7 billion in professional reengineering services by 1999.

Success can  be slippery to define and fleeting in hindsight. In an August 1993 Datamation interview, “Does Reengineering Really Work,”  Michael Hammer said that although 70 percent of firms did not achieve all their BPR objectives, most achieved a large part of what they wanted to do. Other studies at the time supported his assessment. Yet over the next few years, the literature and spokespersons who had once praised its payoffs were now describing reengineering in decidedly less favorable terms. When The Reengineering Revolution appeared in 1995, authors Hammer and Steven Stanton admitted the “reengineering has not been an unqualified success. Many companies have undertaken reengineering efforts only to abandon them with little or no success.

The Enduring Legacy of Reengieering

As a discipline that now has a whole body of knowledge based on extensive studies of implementations, reengineering has become an accepted tool for focusing intense effort on fundamental performance improvement. Reengineering efforts can raise performance to new heights or help rescue a business from stagnation. Throughout the last century, we’ve taken the best techniques from each fad and integrated them into the general body of management knowledge and practice. The practical application of reengineering ideas continues to have a significant influence on how we approach any business improvement project. In addition, a disciplined format for continuous reexamination and rethinking of how work is organized and performed is essential in competitive corporations.

The fundamental reality is that reengineering, applied intelligently, can produce powerful results that make the organization work better for its customers, its shareholders, its suppliers, its employees. As part of its management repertoire, companies can use reengineering techniques when and where the situation calls for them.

When companies embark on a complex technology implementation, shared services implementation, a major change in distribution channel, a merger or an acquisition, reengineering tools and techniques can be applied to the project to improve results. With the boom in electronic commerce and increase in business-to-business data sharing throughout the supply chain, the discipline and techniques of reengineering are more vital than ever.

The Red Zone Problem: Reengineering Right Work Processes

Too often process costs have been reduced and quality improved, yet profits decline. In an excellent overview article in the August 23, 1993 Fortune, “Reengineering: The Hot New Managing Tool,” Tom Stewart summarizes the effects of this paradox: “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 25 percent quality improvement yet in the same period, business-unit costs increase and profits decline.” Reengineering is all about operations. Only strategy can show which operations matter, and matters of strategy are the province of the CEO and executive team. Reengineering without strategy leads to market-blind cost cutting. Robert Tomasko, author of Rethinking the Corporation, advises leaders to get the strategy straight first. “Don’t fix stuff you shouldn’t be doing in the first place.”

In our reengineering 1995 “Getting Past the Obstacles to Successful Reengineering” article in Business Horizons, Sanjiv Kumar and I argue that selection of processes to reengineer should be based on added value to customers and on gaining a concrete competitive advantage. There are some processes that differentiate the company in the marketplace or are the basis for the company’s identity. Others determine how well the company performs relative to its competitors, where a 10 percent improvement could translate into success or a loss of 5 percent in process performance into failure. Such key processes are critical to the firm’s strategic intent.

The selection of processes to engineer, therefore, must be guided by those two criteria. In my experience, companies that picked process targets that were neither valuable for the customer nor focused on gaining the competitive edge were worse off for the time and energy spent in reengineering.

Some companies target well. Agway, the large farm supply coop that sold cattle feed to farmers and gardening tools to grandmas, served two very distinct sets of customers with different needs. In serving customers, there was also considerable redundancy in the order and billing system because customers ordered directly at the stores but received their goods from Agway mills and warehouses. After a strategy review, the executive team first decided to split its commercial farming and retail businesses, and then proceeded to reengineer the selling processes in the new businesses. As a result of their efforts, service to farmers and grandmas improved, and a complex layer of costs was eliminated.

Mutual Benefit Life (MBL), one of America’s oldest and largest carriers, went from being reengineering’s first poster child to whipping boy in fairly short order. During a five-year period, MBL spent millions revamping every major information system, including automating its policy issuance process. At the time, not much thought had gone into questioning the efficiency of the work rules and premises behind how policies were issued. In the late ’80s, MBL’s president launched a project to reengineer its life insurance policy issuance process. After reengineering, 30 jobs were compressed into one; the entire process was handled by a single case manager. Turnaround went from 22 days to three days. Brilliant!

Meanwhile, in another area of the company, disastrous real estate and mortgage investments – about $1 billion dollars worth – were being made, eventually forcing the company to seek shelter under protection of the New Jersey State Department of Insurance in 1991. Too bad for shareholders and employees that process analysis and reengineering didn’t occur in all the right places.

How Really Matters

In line with its own pr., BPR had caused a revolution in business. The revolution was not without costs and consequences. Yet the concept of BPR made too much sense to discard. In fact with experience did come wisdom about how to – and not to – do it. And doing it is no simple matter.

Reengineering is applicable, with little variation in concept, to all types of organizations – manufacturing, service, non-profit, private or public. The study, “Business Process Reengineering: Learning from Organizational Experience,” published in the March 1999 issue of Total Quality Management, showed no significant trends or differences between sectors in terms of length of projects, methods applied or results achieved. Apart from a regional variation in Asia, the basic concepts are being applied throughout the world, in all different cultures. Examples of reengineering were found at all levels: department processes, cross-functional processes, whole organizations, and supply chains. The success factors and problems were the same; however, tactical moves and implementation details differed enormously. No two organizations reengineered in exactly the same way, but they all reengineered.

Almost all of the popular management literature is based on the assumption that how organizational change efforts are organized and implemented does make a difference. The conceptual development and codifying of the “how” of organizational change is one of the enduring contributions of the reengineering movement. Influential books by Michael Hammer, James Champy, Tom Davenport, James Collins, Ray Manganelli, and John Kotter suggest key factors that make the critical difference between success and failure for organizational change: leadership commitment; credibility of project managers; stakeholder buy-in; communication; customer-focused scorecards; new reward and recognition systems; cross-functional teams; and assigning the best people to the project.

Red Zone Management and my previous book, Change Is The Rule, are both intended to add a practical, highly-structured “how to” tool to the leadership arsenal for those critical times and places in the life of an organization. In fact, Change Is the Rule was one of the first books to show change management as more of an engineering challenge at the detailed level of leadership, vision, work processes and performance systems.

One Story Has Many Lessons for the Red Zone

As readers will note with stories in other game plan chapters, there are sometimes multiple Red Zone maneuvers going on in an organization, some maneuvers going well  and some not going so well, at the same time. Companies in the  Red Zone frequently face the daunting task of managing several maneuvers that are part of a bigger organizational effort. For instance, during a merger, the two companies have to deal with integrating enterprise information systems at the same time they blend cultures. Changes in competitive strategies may be achieved by reengineering several business processes. Our first story concerns a failure of strategy, with a strong reengineering flavor and a dose of botched system implementation.

A Bumpy Ride for Greyhound: In 1991, after a crippling six-month strike and subsequent Chapter 11 bankruptcy, Greyhound Lines emerged leaner and ready to get back in the transportation game. The company faced a challenge to win back ridership, already eroded by inexpensive airfares.Executives announced their plan to reengineer the company along the lines of an airline, with a hub-and-spoke system, a new computerized reservation system and higher fares for people who waited until the last minutes to purchase tickets. Effects of the aggressive cost cutting from Chapter 11 reorganization were beginning to hit the bottom line, and the company produced a narrow profit in 1992, its first since 1989. Wall Street rewarded its efforts and its promises, and the company’s stock rose from about $12 to over $21 per share.

The only problem with the promises was that many of the assumptions made as a basis for the project were erroneous. Running a bus company was not like running an airline.

1. Greyhound operated 2,400 buses over 2,600 terminal locations, about 10 times more craft and locations than most airlines.
   
   
2. Average one-way bus fare was about one-tenth of average airline fares.
   
   
3. The average bus rider earned less than $17,000 per year and bought tickets shortly before a trip, using cash since many did not have credit cards.

Compounding the problem, the development of its new computerized reservation system, appropriately called TRIPS, was more difficult than originally anticipated. A preliminary test of the system revealed some serious flaws in the technology and the preparation of people using it. With the new system, it took clerks twice as long to issue a ticket. Remember, company executives had used the new system to assure investors, lenders and securities firms that TRIPS would be up and running for the 1993 summer vacation season. Any bad news that Greyhound’s reengineering plans were off track would doom the company’s critical $90 million stock offering. Eager to deliver on their promises, top Greyhound management overrode the executive in charge of developing the system and declared that TRIPS would go online at the scheduled time, software bugs or no bugs, adequate preparation and training or not.

So TRIPS was rolled out in July 1993. The system continued to malfunction, and terminals often froze up, frustrating both agents and customers. At that point, the database didn’t include all Greyhound destinations. To do ticketing for those cities, reservation agents had to check log books and do manual tickets. Some agents went back to hand writing tickets to avoid the five-minute wait to print a ticket using TRIPS. Customers calling in with reservations encountered problems of a different kind. The new system had been designed to work with a new toll-free reservations number connected to 400 operators. The complexity of the interface was too much for the flawed system, and it would crash. On average, customers had to make a dozen calls before they could get through to reserve a seat on a bus.

Given these challenges, the already resource-short organization was now even less capable of serving customers than before the reengineering project. To make matters even worse, over 80 percent of the people who made reservations were no-shows, so many buses sat empty or nearly empty at the terminals. Since most of Greyhound’s customers did not have credit cards, the company had no practical way to force them to pay. And worse yet, agents couldn’t sell tickets to people who actually went down to the terminal, cash in hand, to buy a seat on the nearly empty buses because the system wouldn’t let them.

No surprises here: ridership fell and customers defected to regional competitors. Revenues were down 12.6 percent and losses totaled $72 million in the first nine months of 1994. The stock dropped to $1.75. Top executives resigned. Shareholders sued after the company lost more than $100 million in 1994.

According to a 1998 article, “Right Strategy – Wrong Problem,” in Organizational Dynamics, during this painful period, industry veteran Craig Lentzsch took over as CEO, bringing in a new management team. They averted bankruptcy through some financial restructuring, and by the end of 1995 the company was again showing a profit. More importantly, Lentzsch de-engineered, dismantling the airline business model and scrapping TRIPS, replacing it with a basic service and sales concept: “If you want to travel by bus, you show up at the terminal and within a reasonable time you get a seat on the bus at an affordable price. If we fill up the bus that is supposed to leave at 10 a.m., we will keep rolling out buses until everyone has a seat.”

The Greyhound debacle has the distinction of being the poster project cited for one of Chief Executive’s “Seven Deadly Sins of Reengineering,” published in the May 1996 issue, using reengineering to avoid making hard decisions. To quote Chief Executive, “A few years ago, troubled Greyhound Lines decided the key to future success was to reengineer its reservation system to the point where it could analyze ridership, fares, take phone reservations and guarantee travelers a seat. But what it really needed to do, analysts say, was to largely abandon the long-haul business and concentrate on shorter trips [which Lentzsch did]. By constantly promising that the new reservation process would dramatically alter its business, management delayed the move that ultimately proved inevitable.”

The Red Zone Moral to the Story:

Getting strategy straight is really critical, and picking the processes that are going to make the most difference from a customer and business point of view are key. Forcing a reengineered process with its attached computer system into play when things and people aren’t properly prepared is a great way to wind up in the doghouse

Cooking with Gas

At press time, Brooklyn Union Gas (BUG) was the country’s sixth largest gas utility. As a result of its reengineering efforts, the company created a culture of customer-friendliness and technological achievement that put it ahead of its competitors. While many organizations relied exclusively on outside consultants in the early years of reengineering, BUG also developed reengineering talent from within. Bill Feraudo, the company’s self-taught specialist and coincidentally senior vice president of marketing, estimates that 80 percent of his time is spent educating and convincing people about reengineering. Feraudo’s comments about the project appeared in “Gas Attack: Brooklyn Union Gas Is Posed to Profit from Energy Deregulatiion,” published in the August 25, 1997 Forbes ASAP Supplement.

Back in the early ’90s, Feraudo was information systems vice president with a reputation as a take-charge guy who could inspire a sense of mission.   Feraudo and his reengineering team had a budget of $46 million and a deadline of 2-1/2 years; $48 million and 2-3/4 years later the system went into effect. And so did Feraudo’s promotion as head of customer service. “My reward for building the system was having to live with it,” he said.

Living with it, Feraudo soon discovered gaps in the company’s work processes. Sales and marketing didn’t work closely enough with the customer service reps to quickly identify selling opportunities. Customers with problems were transferred from rep to rep and required to re-explain their problems with each transfer, and then any installation and repair work had to be scheduled far in advance so service waits were extensive.

Foreseeing the intense competition for customers that was about to occur under deregulation, he reasoned that the only way to retain existing customers while growing new business would be to “reorganize the company from the customer’s point of view.” Feraudo began his educational odyssey by attending reengineering seminars and then taking his findings to his boss, CEO Robert Catell, who understood well the impact of the coming deregulation, mainly that since gas and electricity were becoming commodities and subject to competitive pricing pressures, profitability would come from new services.

Senior management embraced his vision and Feraudo was given a mandate to reengineer BUG’s customer service organization from the bottom up. His first step was to establish a business transformation team of 10 general managers from various functions across the company. In turn, the team sought out CSC Index to help them learn how to rebuild every customer interface process.

The team targeted BUG’s largest market, the residential sector, first. Based on customer feedback, they set three broad goals: (1) create customer satisfaction; (2) enhance growth opportunity; and (3) increase net profitability. Under this scenario, a customer with a gas-heated home could be sold gas lights or a gas pool heater. This meant that every employee in contact with customers, from customer service reps to meter readers to appliance installers, would need to understand and promote the benefits of gas.

Reengineering the sales process was a top priority. Starting with the weak-performing 36-member Advanced Energy Options group, a sales unit that handled leads for the residential sector, the transformation team reengineered the unit out of existence and replaced them with a new process. Leads would now come into a pre-sell qualification center where reps were trained to do much of the work that the sales force used to do: qualify and categorize leads as well as schedule appointments, mail product literature, and answer general questions.

The team bundled the technical and sales positions. Leads went to plumbers (or installers, as the company calls them) instead of a sales force. On a computer-run rotating system, a certified master plumber, contracted and trained by BUG, was assigned appointments set by the pre-sell qualification center. The installer would be responsible for explaining the benefits of the particular product the customer had inquired about, closing the sale and installing the product. Installer oversight was managed by a seven-member team called trade ally reps. They were responsible for training installers in sales, safety and new installation requirements and held accountable for installers’ performance standards.

Turning a plumber into an effective salesperson wasn’t easy, so the company invested heavily in more training. BUG middle management, used to a command-and-control style, had difficulty transitioning into effective coaches and facilitators. They too received customized training in what BUG called “the supervisor of the future.” Most importantly, BUG transformed the way it compensated its employees, starting with a noncash reward system for groups that help improve profitability. Ultimately, a portion of all customer contact employees’ salaries would be tied to customer satisfaction ratings.

Among the new benefits achieved by the reengineering were: (1) customer records were now transferred along with the call with the press of a key; (2) information about contract maintenance options and other possible cross-selling opportunities popped up automatically when reps scheduled appliance installations for customers; (3) and salespeople could go to a phone and download complete and up-to-the-minute histories of industrial customers before making sales calls.

By 1996 Brooklyn Union Gas had reengineering about a third of its processes, including customer service, marketing and sales, with Feraudo personally involved in at least fifteen of the projects. Feraudo also masterminded the development of BUG’s unregulated businesses, under the umbrella name KeySpan. He says, “I’ve had so many different roles at this company that I’m not sure what to call myself. I guess you could say that I build things.”

Something sure helped build revenues. Revenues for 1996 reached $1.43 billion, up $216 million over 1995 and earnings rose an average of 15 percent over the past five years, climbing to $97 million in 1996, excluding gains and charges related to its IPO. As KeySpan, the company is now the largest distributor of natural gas in the Northeast, with 2.4 million customers. The company closed out 2000 trading at a 52-week high, and CEO Catell  announced that earnings for 2000 would be $2.40/share, significantly ahead of estimates.

The Red Zone Moral to the Story:

These folks did it right. They developed the detailed expertise needed for big league reengineering, dedicated strong resources to the job, and kept top management in the lead. What a great set up for the Red Zone Principles of Reengineering.

Principles

And now for the Red Zone Principles that should apply to the management of the reengineering maneuver. The goal in this chapter is not to duplicate the Principles of Chapter Four; instead we want to show variations and distinctions on those Principles for this particular Red Zone maneuver.

Red Zone Principle One: Declare the Company in a Red Zone
When employees in today’s businesses hear that reengineering is afoot, alarm bells go off. Over the past ten years, many of the changes that organizations have made have been labeled as reengineering whether process re-design was the focus or not. Unfortunately, restructuring, dismantling of organizations, slashing of costs and massive layoffs have all been labeled by some managers and the business press as reengineering. In short, reengineering has gotten a bad name that may not be deserved.

The reengineering maneuver is all about making fundamental changes in work processes for radical performance improvements that result in improved business results. Such business changes will be difficult to design and even more difficult to test and implement. The challenge for top management in the reengineering Red Zone is to ensure the organization fully understands the reason for reengineering, the consequences of not reengineering, and the most likely outcomes of the reengineering exercise.

As a part of the declaration of the reengineering Red Zone, I recommend that top management use the mantra for that special behavior and commitment needed for this very difficult maneuver: Olympic-level motivation and creativity to achieve the desired gains from reengineering coupled with the “do or die” resolve to avoid any potential loss. But rather than focusing the declaration on the word reengineering, we recommend labeling this Red Zone maneuver with terms that describe the business reasons for the reengineering, like “service excellence” or “added value to customers.”

Red Zone Principle Two: Put the Best Players in the Game
Reengineering is the chance to start from a clean sheet of paper and use the very best available capability to work in a new way. Not everybody in the organization will have the perspective and needed skills to do such an exercise. The organization must go for those managers and workers who are the best thinkers for the reengineering design phase, regardless of their current roles or importance in the organization. In addition, those managers who will be critical for the implementation phase of reengineered processes will need to be pulled into play. Surveys of failed efforts through the mid-’90s showed that many companies failed to budget adequately for the reengineering project in terms of the people. Selecting the very best people to lead the project is critical. The company capitalizes on their expertise, ability and credibility to lead the process and enlist support from other members of the organization.

As with any Red Zone maneuver, reengineering requires direct leadership in massive amounts from the executives of the organization. Each and every executive has a distinctive role that must be played well for the organization to enjoy reengineering success.

• Red Zone Duties of the Chief Executive Officer (CEO)
  • Chief advocate of reengineering to the organization. The CEO knows in his gut that reengineering is needed and is willing to put the organization through the ordeal of the reengineering maneuver.
  • Chief Strategy Officer who ensures that the competitive strategy of the organization is clear right at the start. Reengineering must be conducted to further the long-term interests of the organization, and a clear statement of strategy is needed up front.
  • Works with the COO to target the processes for reengineering. The CEO retains the final say on the processes chosen for reengineering.
  • Works with the COO to set business goals for the reengineering project.
  • Chief customer advocate who ensures that reengineering really does add value from the customers’ point of view. 
  • Chief Communications Officer to the firm, the board, and investors on the business reasons for reengineering, the specific business goals that are to be reached, as well as the continuing status of the change.
  • Major provider of resources and internal obstacle remover. In addition, the CEO must keep the ultimate time clock on the reengineering maneuver and the business objectives associated with it

• Red Zone Duties of the Chief Operating Officer (COO)
  • Chief Targeting Officer who ensures that the right and best processes are targeted for reengineering.
  • Owner of the specific business goals of the reengineering project.
  • Intimately involved in the design and approval of the new processes that come out of reengineering. 
  • Chief executor of the reengineering blueprint. The COO will be the master program manager, insisting that mechanical changes necessary for the reengineering get made on target, on time, and on budget.  
  • Day-to-day owner of the customer scorecard since the COO owns those parts of the new organization that touch the customer. 
  • Works with the program manager to understand, identify, and schedule all the mechanical changes that will be needed to meet the business objectives of the reengineering project.
    
    
• Red Zone Duties of the Chief Sales Officer
  • Works directly with the COO in the targeting of processes for reengineering. 
  • Ensures that a customer scorecard has been completed as a part of the targeting process to ensure that the improvement of customer value will be explicitly taken into account.
  • Key focus is on customer relationships during reengineering.  Responsible for key customer interaction, market impact, and prevention of customer loss.
  • Responsible for keeping the CEO and the executive team in sync with the marketplace during and after the reengineering.
  • Chief communicator to customers to explain how reengineering will serve the customer better.

• Red Zone Duties of the Chief Financial Officer (CFO)
  • Works with the CEO to understand and document the economic need/gain for reengineering.
  • Leader in getting business metrics in place to measure the results of the reengineering initiative, including measurements that allow visibility of progress toward the specific business goals of reengineering. 
  • Assisting the CEO with the resourcing needed to get the reengineering initiative completed.
  • Works with the CEO and Human Resources Officer to ensure that monetary incentives are in place to adequately motivate key organization members for reengineering success.
    
    
• Red Zone Duties of the Chief Information Officer (CIO)   
  • Chief Systems Architect who works directly with the COO to ensure that information systems needed to support reengineered work processes are identified and implemented.
  • Works directly with the program manager and reengineering project managers to ensure they have the needed information technology resources to be able to successfully identify and re-design new work processes.
  • Works directly with the CEO and CFO to ensure that the company metrics and scorecards for measuring reengineering results are in place. 

• Red Zone Duties of the Chief Human Resources Officer (CHRO)
  • Works with the COO in aligning employee performance management systems to focus on the new reengineered work processes  as well as changes in incentive compensation criteria.
  • Works directly with the COO to ensure that all people impacts of the reengineering are identified and worked through.
  • Leader in identifying the worker competencies needed for the reengineering work processes and in providing the training employees will need to develop those competencies.
  • Assists the COO in dealing with performance issues associated with workers who are unwilling and/or unable to align with the reengineered processes. Unfortunately, it is quite common to find individual workers who for whatever reason absolutely refuse to change behaviors. The CHRO works to support the transfer or termination of such workers.

While reengineering should have a big impact on an organization, its focus will be on specific work processes, not the entire organization. Regardless of the processes selected for reengineering, the entire executive team must be in sync and supportive of the effort.

Red Zone Principle Three: Focus on the Customer
Reengineering may or may not be pointed directly at increasing customer value. For example reengineering might have direct CRM goals: to increase the speed of response to customer orders for one market segment or to smooth the process of billing for another segment. In this case, both examples are aimed directly at increasing value for the customer.

In other cases, however, the purpose of reengineering might be only indirectly related to customers, for example, to lower the overhead costs associated with manufacturing. Hopefully the lowering of costs would eventually translate into lower prices and therefore better customer value. Reengineering will also pose the risk of disrupting the company’s relationship with customers.

Regardless of the purpose of reengineering, a customer scorecard, like the one illustrated in Chapter Four, should be completed as a part of the Red Zone design sequence. This scorecard will be the single most important tool for keeping the reengineering project focused in the right direction and for resolving the inevitable conflicts that come up during the process. The choices of new process designs are many, and the company needs some way to evaluate those choices. I recommend using questions based on value to the customer as the best tools for making clear choices in reengineering. Asking the following question can help clarify design choices, “Would this proposed re-design bring more or less value to the customer than other proposed designs?”

Red Zone Principle Four: Set Clear Red Zone Goals
Clear goals are vital for the proper management of Red Zone reengineering. Needed goals fall into two categories: process goals and company result goals. Process goals describe desired results from re-design of work processes. For example, a process goal might be to reduce the cycle time for new product development from 18 to 12 months or to reduce the time it takes to solve a customer’s problem from four working days to one. At least one of the process goals should reflect the company’s desired gains on the customer scorecard completed in Principle Three. Setting a specific goal that speaks to the company’s relationship with the customer will be critical for keeping the reengineering initiative moving in the right direction.

Result goals describe the desired business outcomes of reengineering work processes. Common result goals are stated in costs reduced, revenues gained, market share expansion, and return on investment. For example, result goals connected to the previous illustration might be to increase market share by five percent or reduce development costs by 15 percent by fielding new products more quickly.

While both kinds of goals are critical, they are used differently in the management of a reengineering maneuver. Process goals can have a great impact on the quality or creativity of the process re-design. Setting a goal of five percent improvement in a process will likely encourage evolutionary thinking on the part of the design team, while a goal of 50 percent improvement will call for the team to think outside the box in an effort to come up with a totally new approach.  The outrageous goal of 50 percent is designed to stimulate creative thinking and may not be a totally realistic expectation on the part of management. By the way, I haven’t seen a top management team yet who would be upset with only a 45 percent improvement in a business process.

Result goals, on the other hand, should be set like other business goals: at feasible but challenging levels. In a mature industry filled with established companies, it is not likely that major changes in business results will be available. We would not recommend launching a reengineering project with the business goal of cutting overall product costs by 50 percent or increasing market share by 50 percent. Such goals will be seen by managers and workers alike as practically impossible and will not serve as good direction or motivation for working hard on reengineering.

All process goals, however, should be ultimately linked to business goals. For example, a good test of reengineering targeting is to set draft process goals and attempt to calculate the business results that are likely to accrue to the company if process goals are met. If the calculation shows that big improvements in process performance are not likely to change overall business results, then the wrong processes have been targeted for reengineering.

Red Zone Principle Five: Blueprint for Success
The goal of this blueprint step is to generate a picture of the organization as it will operate in the future with reengineered processes in place. In reengineering terminology, blueprinting is very close to what is called process re-design. However, blueprinting goes further to picture the whole organization, not just those processes that have been redesigned.

The first and most important step in building the blueprint will be process re-design. Reengineering or re-design methodologies are common in both the business literature and among consulting firms who do reengineering. While the words vary a great deal in these methodologies, the ideas are essentially the same and include steps like those below taken from our firm’s Change Management Toolkit for Reengineering:

• Target key organization-wide processes that hold potential for enhancing organizational performance.
  
• Understand those processes in terms of customer needs, design or technology weaknesses.
  
• Identify performance targets and investigate innovations that may allow those targets to be met.
  
• Develop a picture or vision of a radically improved process and validate that vision with others who have a stake in the process.

Once there is a stable vision of redesigned process(es), an organizational blueprint can be constructed to give the employees the needed picture of the new venture the organization will become after reengineering is complete. For the blueprint to be valuable in execution and communication, it should contain the information as listed in Chapter Four: Red Zone Principles.

I have seen much confusion in reengineering projects because of failure to provide the organization with a comprehensive blueprint. Many organizations focus on providing information about the reengineered work process only without giving the kind of detail employees need to understand the whole Red Zone maneuver. It’s far better to have too much information about the desired future organization than to not have enough.

Don’t Move! Don’t stop the Red Zone design engine, the sequence of design steps, and go to execution principles until there is a clear picture of the organization as it will be operating after the reengineering. Before execution begins, top management must be clear on:

• How both customer value and business results will be enhanced with the improved, reengineered processes.
• How the organization’s major processes will work to meet those enhancement goals.

Red Zone Principles for Execution of a New Strategy

The Red Zone execution principles for reengineering are especially critical since the change process will likely be very disruptive to personnel working on and around the targeted processes. In an overview article in Fortune, Tom Stewart warns: “All change is struggle. Dramatic, across-the-company war.” Once the new design is presented, he says, “the true test of leadership begins.”

Red Zone Principle Six: Focus on Mechanics
Successful execution of the Red Zone maneuver properly begins with the identification of the mechanical moves that must be made for reengineering success. In reengineering the initial focus is on targeted processes from the beginning of the maneuver, so those mechanicals should be identified before leaving the design steps.  However, our firm has never been involved in a reengineering exercise without finding other needed process alterations other than those targeted.  Principle Six calls for us to examine work processes organization wide to make sure that all the mechanical process changes that need to be made for full implementation have been identified.

In many cases the next step is to identify the tools that will be needed to support the changes in the reengineered processes and/or the altered enabling processes. The basic idea is to build or buy the tools, including information technology applications, that match the details of the reengineered work processes. Easier said than done, particularly with computer applications. Sometimes, however, companies take an alternative route. They only describe their reengineered processes at a general level, then select their tools or computer applications from the marketplace, and only then do they detail their process re-design, to fit exactly with the tools they purchased. Regardless of the way the company proceeds, the bottom line is still the same, work processes and tools have to match to the letter for maximum performance and minimum confusion.

Reengineering calls for people to stop doing work the old way and to start doing it the new way. The change to the new way calls for a new job description and agreement with the employee, training in the new work process and its accompanying tools, and possibly alterations in employee compensation. To make this point more clearly, if 1200 people are involved in doing work a new way as a result of reengineering, then management has 1200 new work agreements to put in place with employees. That means 1200 altered job descriptions, 1200 folks to run through training, and 1200 handshakes with employees as they and their managers consummate an agreement to do work the new way.

Red Zone Principle Seven: Use Program and Project Management to Build to Print
A big reengineering project calls for systematic program and project management to ensure that all the mechanical parts are carefully worked to meet reengineering goals. We have found that the program manager, acting as the agent of the CEO or COO is critical in managing the reengineering effort from its beginning to the very end. The program manager’s job is tough enough during the early phases when her prime responsibility is to ensure that the organization is ready for the reengineering effort. The job really becomes difficult during the design and execution phases when multiple project teams need to be formed and focused first on targeted process redesign, then on implementation planning.

During the design phase of reengineering, the program manager works with senior executives to create project teams around the re-design, usually forming one team around each major process or sub-process to be re-designed. The program manager’s job then is to ensure that these re-design project teams have the needed resources, training, and tools to be able to accomplish their re-design tasks.

The program management task during redesign is frequently complicated by what are call the quick wins, the relatively small and quick change opportunities that are discovered as the redesign process goes along. Quick wins can be very valuable for the company and improve performance in a relatively short time frame without the need to wait for completion of the total redesign. The program manager’s job will be to form project teams around as many of the quick wins as possible and put these project teams to work with the existing organization to produce benefits for the company. Quick wins sound good and frequently look easy, but in reengineering an existing organization, absolutely nothing is easy. During the last weeks or months of the design phase, it would not be unusual to see a program manager riding herd on two or three major redesign projects and up to a dozen quick win projects.

Keeping all those projects headed in the right direction, balanced in resources, and cooperative is one of the toughest Red Zone jobs. In addition, the program manager must have a take-no-prisoners, slam dunk approach to the quick wins. Failure on a quick win is not an option; failure here can jeopardize the entire reengineering maneuver.

The most critical challenge for program management comes, however, in the execution phase of reengineering when re-designs and the required mechanical changes to bring them to life must all be implemented. The challenge is to put the blueprint into effect without altering it to a point that its value will be lost. Implementing the blueprint just the way it has been crafted will take a lot of energy, courage, and toughness, working directly with the CEO and COO to ensure that the design gets implemented with integrity despite the obstacles that will be raised by the organization. Implementation of the design cannot be delegated to the managers in the existing organization to work for themselves. To do so will likely prove to be disastrous, as human rationalization processes take over: “We don’t have to do it the new way, because we are essentially already doing it kinda that way, aren’t we?” Implementation of reengineered processes takes top down leadership and control to ensure that the planned benefits will be there.

To cap off the program management task, consider this. There has probably never been a major reengineering project in the history of the world that did not have major interruptions caused by something else changing in the organization, be it key personnel moves, competitor attacks, or market upsets. The job of the program manager is to make the reengineering project a success anyway, working out the inevitable problems of balancing her project against the realities of today’s company business.

Red Zone Principle Eight: Focus on Speed
Speed is important. The goal is to move briskly through the reengineering design and execution steps to change over the organization.  If major reengineering is being done, with top management heavily involved as they should be, critical executive attention will not be available for a fully effective strategic focus. The idea is to get through the reengineering maneuver as fast as possible to minimize that strategic distraction.

Speed is especially critical during the execution steps when the disruptive steps of starting to work in new ways begin. While elapsed times may vary, most major reengineering projects seem to take a year to 18 months from the time of start of serious consideration of the maneuver to the completion of implementation of reengineered processes. The length of the project can vary a great deal, frequently depending on the amount of information systems work to be done. And then, the organization may not be finished since a number of continuing refinements will stay on management’s agenda until it is time for the next major redesign. Yes, there will be another major redesign as technology continues to advance and know-how develops. If your company doesn’t reengineer regularly, you may be left in the competitors’ dust.

Red Zone Principle Nine: Meet Special Needs of Workers
The most important need for workers during the reengineering maneuver is knowing where they stand. Given the bad name that reengineering has on the street, it is especially critical to continue a robust communication program during the entire Red Zone maneuver to ensure that people know what is going on with the project, why reengineering is necessary, and how the organization’s, and therefore their, future will be unfolding.

Beyond understanding the changes in the organization, people will need direct help in responding. Since reengineering is about putting new know-how and tools to work to make work processes perform better, employees have the immediate need to improve their knowledge and skills.  Effective, efficient, timely training will be needed to ensure that people will be able to perform as needed in redesigned processes.

Workers who are part of reengineering project teams frequently need special attention. It would not be unusual to have workers away from their regular jobs and organizations for weeks at a time to help design the processes of the future. The usual camaraderie of the design teams will not overcome the job security issues that frequently arise among the very people who know the most about the redesigned processes. Top, and we mean, top management must be directly involved in reassuring these valued members of the reengineering project teams that they have a future in the organization.

A final but critical special need of some employees, particularly those who have not experienced changes in their jobs before, is for direct encouragement to get on with the change. While resistance frequently runs high in some folks, others make needed job changes rather easily. Those who just refuse to go along with the change need special encouragement beyond the retention of a good job. That special encouragement might range from the message to “get over it” to other kinds of verbal kicks in the pants. Finally for some, labeled in the reengineering literature as the stragglers, special encouragement might be the direct communication that failure to change will cause an immediate loss of employment. One of the recurring themes from interviews of leaders of reengineering projects is that if they had to do it all over again, they would not have waited as long to shoot the stragglers, putting them and the organization out of misery sooner!

Red Zone Principle Ten: Reward for Red Zone Performance
So you want big results from the reengineering maneuver? Then incent the key players in the organization to get those results. Put your money where your mouth is, and put major carrots out there for key managers who directly lead the reengineering maneuver to success. Direct and above normal incentives must be positioned for accomplishment of both process goals and business results goals that accrue from the reengineering initiative. Reengineering major processes in today’s organization is a huge and difficult task. If you want it done right, you will need to pay executives to do it. Positioning reengineering as just part of top manager’s regular job while leaving big bucks in plain view behind today’s short term revenue and profit goals will not get you a reengineered company.

As we have recommended before, incentives need to be tied to multiple goals, including both process and business goals, and paid over one to two years after the reengineering maneuver is essentially complete. Avoid paying incentives for the accomplishment of process goals without corresponding achievement of business results. And avoid paying incentives for either accomplishment if other parts of the organization have been trampled just to get to the reengineering targets. This is about the point where I might say, “Just use common sense to dish out the rewards.” For unknown reasons, however, many companies are reluctant to properly  incentivize performance in the Red Zone. To me it is no wonder that Red Zone performance continues to be dreary in these very companies!

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