CAMBRIDGE, MASS. -- Forget quality circles, worker empowerment or management by walking around. Those are nice -- but we're not talking nice. We're talking radical, as in:
Eliminating the marketing department -- and every other department, for that matter.
Letting customers calculate their own bills.
Trusting employees to hire and fire colleagues.
The unlikely revolutionaries for this assault on everything Corporate America holds dear are 275 middle managers attending a three-day revival meeting on "corporate reengineering" in a windowless hotel ballroom here. Among the shirt-sleeved congregants are 21 from Polaroid Corp., 14 from Shell Oil Co. and a tame-looking duo from Freddie Mac in McLean.
Holding forth is the movement's high priest, Michael Hammer, a tireless proselytizer for productivity. His gospel, "Reengineering the Corporation," is a bestseller, and the White House has had him in for a private sermon on reengineering government.
Bearded and bespectacled, Hammer -- a onetime Talmudic student whose father was an Annapolis rabbi -- is midway through his well-honed shtick, a combination of Socratic dialogue and Catskill stand-up comedy routine. He mocks the ways of corporate bureaucracy, dips into cosmology and auto racing and quotes everyone from Abraham Lincoln to Al Capone.
"This is death," he yells, pointing to a familiar corporate organizational chart.
Reengineered companies don't have departments, he says, they have processes -- the process of acquiring clients or the process of filling an order. Salvation, he says, comes from redesigning one process after another until the old corporate structure and culture withers away.
And of course there are parables, tales of reengineering miracles -- how Bell Atlantic Corp. cut the time it takes to design and install a new circuit from two weeks to three hours, how Ford Motor Co. trimmed its accounts receivable department by 80 percent, how International Business Machines Corp.'s credit department absorbed a 100-fold increase in transactions without adding a single new employee.
But Hammer knows that despite the more than $6 million that corporations will put in his collection plate this year to learn how to replicate those successes, despite the book sales and the rush by the the management consulting world to hop on the reengineering bandwagon -- despite all that, the deliverance of American business is not yet at hand.
"I say to companies, 'You have to reengineer or you'll die,' " he says. "And they say, 'Right! We'll get back to you on that.' "
The audience erupts in knowing laughter. More than half of them will fail in their reengineering projects, he warns -- because they or their bosses will lack the will to see it through.
"Reengineering is not free," Hammer declares. "It is purchased in coin denominated in suffering."
Is reengineering merely the latest in management fads? Or is it, as Hammer claims, nothing less than the undoing of the Industrial Revolution?
Probably a little of both.
"Reengineering has become a label for every corporate change process that anyone has thought of -- or wants to get funded," laments James Champy, Hammer's coauthor and head of CSC Index, a consulting firm.
"The term has become so broad as to become almost meaningless," complained David Nadler, a New York management consultant.
But Nadler and other management experts say that, despite misappropriation of the term, the genuine reengineers may be on to something important and real.
"This is very serious stuff," said Thomas Gerrity, dean of the Wharton School of Business, where reengineering is now part of a required course. "It integrates a number of ideas that have been around for a number of years. What's new is that it insists that you do them all simultaneously."
The central idea of reengineering is to turn the old industrial model on its head. In this model -- laid out by Adam Smith and Henry Ford -- complex work is broken down into simple, repetitive tasks that are performed in sequence by specialists until the good or service is delivered to the customer. The primary job of supervisors is to control the quantity, quality and cost of the work performed. Employees were organized by function -- sales, manufacturing, customer service and the like.
But in recent years, companies organized along those lines have found themselves handicapped in a world of intense global competition and rapid technological change. They were spending too much time -- and money -- coordinating and communicating and too little time doing work that benefits customers, analysis found. Overhead costs were soaring, while boundaries between departments had become barriers to change.
In the 1980s, some U.S. manufacturers began to develop new models. Instead of one worker performing one job, teams of workers -- each trained in several jobs and equipped with computer-driven machinery -- were given responsibility for significant chunks of the manufacturing process. Layers of supervision were eliminated. Designers had to work with marketers and production engineers to come up with products people wanted that could be made easily, quickly and cheaply.
Now reengineering is taking many of those techniques and extending them to all parts of a company -- and all parts of the economy, including the burgeoning service sector, where industries such as retailing, telecommunications and financial services are in the throes of painful restructurings.
In its crudest form, reengineering has proven an effective way to cut costs and reduce payrolls. But consultants who do it report that reengineering gets just as much impact from increasing sales as it does from decreasing costs, either by grabbing market share from competitors or generating new products and services.
The recent history of General Motors Corp. offers a case study in how reengineering differs from earlier attempts at corporate renewal.
To save on its labor costs, the giant automaker embarked on an estimated $40 billion modernization drive 15 years ago, much of it centered on using robots to replace the work of humans on its assembly lines. But the effort did little to reduce the cost of production, while GM's market share continued to decline.
At the same time, GM launched its Saturn project, intended not simply to produce cheaper cars, but to reinvent the car business. Instead of automating the old single-product assembly line, Saturn designed its assembly process around self-managed work teams and flexible production lines. Perhaps more significant, every other aspect of the business was reengineered as well -- from the way that cars were designed to the no-haggle pricing on Saturn showroom floors.
Saturn now is so successful that it recently increased its production rate by 25 percent, while inventories of unsold cars are running at one-third of the industry average. GM's operating profit margin on Saturns is among the best in the business, according to analysts.
"Reengineering is not restructuring or downsizing," Hammer explained at a gathering in Chicago. "Downsizing is about doing less with less. It's not automating -- automating is paving the cow paths. ... Reengineering isn't about fixing anything," he said. "It's about obliterating what you have now and starting from scratch. It's about transforming practically every aspect of your organization, often beyond recognition. And if you're not prepared to do that, don't start."
Unlike most management theories, which have their origins in corporate consulting and business schools, reengineering's roots are in technology. Many of its practitioners, like Hammer and Champy, have degrees in computer science. And nearly every reengineering project involves using technology to allow people to work quicker and smarter.
Purchasing managers at Procter & Gamble Co., for example, don't wait to receive an order before sending diapers to Wal-Mart. P&G's computer talks directly to Wal-Mart's and does the reordering automatically.
When the drive-up line starts to back up at Taco Bell, an employee with a hand-held computer walks the line to take orders and sends them electronically to the kitchen. The restaurants can double their lunchtime capacity without having to add expensive seating areas or drive-up windows that sit unused most of the day.
Ironically, what drew many of these tekkies into reengineering was the realization that expensive new equipment had failed to yield the kind of bottom-line results that had been expected in many organizations, particularly in service firms.
The technology was used to automate old processes rather than devising wholely new processes. For service companies in particular, reengineering is born of technological frustration.
That was the case at Showtime Networks Inc., the premium cable television programming service. About 18 months ago, Jerry Cooper, Showtime's chief financial officer, found that the company had spent $1 million trying unsuccessfully to upgrade his department's computer system.
The bulk of the work in Cooper's department is collecting monthly fees from cable systems. Because the fees were based on complex formulas negotiated in 10,000 separate contracts, however, Showtime and its customers rarely agreed on what was owed.
To adjust a bill, the accounts receivable clerk needed permission from a supervisor, a manager and a director, who would often check with the salesperson handling the account -- who in turn would check with the vice president for sales.
In addition, Showtime's audits of its customers often uncovered major underpayments. The process of collecting the money often embroiled the customer and the finance and sales departments in a three-way dispute. In the end, Showtime wrote off about $10 million a year, an amount equal to 10 percent of its profit.
Despairing that he could even automate this process successfully, Cooper decided to scrap it altogether and design a system in which customers, in effect, bill themselves.
Today, the finance department bears little resemblance to its former self. Most employees have been trained in all the accounting department's functions and are organized into self-managing teams. Team members are given wide latitude in settling accounts with customers, eliminating two of three levels of middle management.
But more important, the number of adjustments is rapidly declining as Showtime works with its customers to establish computer systems that allow customers to generate their own bills. And for the first time, finance staff members are involved in contract negotiations in an effort to simplify contract terms and avoid discrepancies before they arise.
The department's newfound efficiency will allow it to handle billing for new channels without adding personnel. And Cooper intends to use the sales data gleaned from customers' computers to help the cable systems better market premium channels.
"This was not intended to be a cost-cutting or head count-reducing exercise, but to provide us with a strategic competitive advantage," said Thomas Hayden, the Showtime salesman who oversees the effort.
Sometime next month, Taco Bell will roll out four pushcarts in the Washington area to sell burritos and sodas on sidewalks. If all goes according to plan, the carts, which cost less than $10,000 each, will generate enough profits to pay for the initial investment in six to nine months.
At Taco Bell's modern headquarters in Irvine, Calif., a tieless John Martin is the epitome of a chief executive in a permanent state of reengineering. Since taking over in 1983, he has transformed the money-losing Mexican restaurant chain into the fast-food industry's most aggressive player, rewriting the rules of the business.
While other competitors sought to reduce the 27 cents of every fast-food dollar that went to pay for the food, for example, Martin went to work on the other 73 cents, cutting overhead expenses by 7 cents. The savings allowed Taco Bell to raise wages above the industry average, restore the company to profitability and launch a price war that still rages.
Taco Bell restaurants bear little resemblance to their hamburger and chicken competitors. Instead of using expensive retail space to prepare food, Taco Bell chops the cheese, onions and lettuce; makes its tortillas and pre-cooks the meat and chicken in regional commissaries, shipping them to restaurants for heating and final assembly. That not only saves money but has cut customer waiting time an average of 70 percent.
From a current base of 4,200 locations, Martin envisions 200,000 "points of distribution" -- peddling tacos at as many schools, airports, food courts, shopping malls, movie theaters and urban street corners that will have them. The goal is to make Taco Bell the low-cost, high-volume producer -- the Wal-Mart of the stomach.
"Reengineering ... is about constant change," Martin said. "You have to be willing to discard everything that's been done in the past -- and then when you finish, go back and do it again."
Despite all the recent traffic, the road to corporate reengineering remains unpaved. Front-line workers are prone to see it as cover for layoffs, while middle managers sense the threat to their jobs and status. Top executives are wary of starting out before knowing where it all will end.
Their fears are not unfounded. Hammer estimates that, on average, reengineering takes 40 percent of the labor out of most processes. For middle managers, it's even worse -- Hammer figures 80 percent of them either have their job eliminated or cannot adjust to a system that requires them to be more of a coach than a taskmaster.
But perhaps the biggest problem with reengineering is that the executives stop the process when it moves to making wholesale changes in compensation, corporate structure and lines of authority.
Those who live through it, however, find that reengineering changes the nature of work. Instead of performing simple tasks in complex processes, workers perform more complex tasks in a simplified process. Pay tends to be higher, turnover lower. And with the help of better information systems and more training, teams make more decisions on their own. The idea of a boss becomes almost an anachronism.
Careers also are redefined. Instead of being delineated by steps up well-defined corporate ladders, advancement tends to be measured in terms of bigger bonuses and more challenging responsibilities.
"One problem ... is that, without all those titles, how do you tell your neighbor that you're an important person?" Hammer asks. "The simplest answer would be to print everyone's pay on their business card and get right to the matter -- but probably that would be in questionable taste."