Don't downsize - reengineer.

When recession strikes or when backlogs dry up, business' first line of defense has traditionally been to cut costs by laying off employees and otherwise "downsizing." To formalize what has by now become second nature to most CEOs, we've even invented a buzz phrase for it: lean and mean.

But today, as with so many of management's assumptions about how business works and what the proper response should be in a given situation, this one also has become obsolete. Times are not "tough" in the traditional sense--the economy isn't in recession and competitors aren't suffering equally (in fact, many are doing quite well).

Simply put, a company's survival or success is not in doubt today because of a dip in the business cycle, but because traditional management practices and assumptions are out of step with the industry's new requirements for success.

As every manager knows, in today's world higher product quality and lower costs are required. More services and lower prices are expected. "Partnerships," and the unprecedented commitment of human and other resources needed to maintain them, are increasingly prevalent--although these same valued partners will continue to put the squeeze on your prices and margins.

Such is life in the new economy, where responsiveness, flexibility, service, quality and efficiency are all required for success.

Do More with Less

To meet these new success requirements, CEOs must, among many other things, abandon the notion of downsizing, which forces their businesses to make do with less and inevitably results in an organization that can only "do less with less" for customers who increasingly want more.

Instead, ways in which companies can "do more with less" must be devised and implemented so that product and service quality is improved while, at the same time, inefficiencies are taken out of the system and significant cost reductions are achieved.

That brings us to reengineering, which is an approach to improving business performance where the nature of work--and of the workers themselves--are changed so significant improvements in both efficiency and effectiveness can be achieved. In essence, reengineering stands the traditional "industrial model" of organization and management on its head.

Throughout the industrial era, achieving efficiency and effectiveness meant creating simple, one-dimensional jobs performed by narrow functional specialists. To make these specialists function as a coherent whole, businesses created elaborate command and control mechanisms, giving rise to the modern bureaucracy. But the industrial era is past--we are now in the "knowledge era."

The basic premise of reengineering, on the other hand, is that jobs--and the workers who perform them--should be complex, knowledge-based and holistic so that the common and control aspects can be as simple as possible. In this type of environment, both efficiency and effectiveness are enhanced.

The Big Three

The Big Three automakers have had good success in reengineering, most notably by creating the "platform team." For ages, design engineers, manufacturing types, financial people, marketers and others worked in isolation--within the confines of their narrow functional specialties or "chimneys"--during the new car development cycle. The resulting process was extremely slow, error-prone, devoid of significant customer input, and fraught with internal bickering and politics.

Today, the process has been reengineered to where a single multidimensional team is responsible for all of the development cycle. As a result, the process has been moved closer to the customer, time and cost to market have been cut in half (or more), and product quality has been significantly enhanced. This change has enabled the Big Three to "do more with less."

Another example comes from TDC's work with foundry clients in reengineering the quotation development process. In most foundries, RFQs come in via the sales department and, before they are customer ready, pass through the hands of one or more individuals in nearly every functional department.

Traditionally, no single person understood the entire process--much less was responsible for seeing it operated as efficiently and effectively as possible. As a result, quotes took two weeks or longer to process, misunderstandings and errors often occurred, customers were unhappy, and foundries frequently either left money on the table or couldn't make the part for the quoted cost.

Today, many of our clients have a single multitalented individual--or a small team--responsible for the entire quotation development process. Aided by a database of historical price and cost information as well as a unique approach to analyzing production costs by "part family," our clients' quotation development processes have been cut to two days; customer satisfaction has improved dramatically; quotation "hit rates" have jumped; and costs have been reduced by slashing wasteful steps in the process and by eliminating much of the command and control apparatus.

Unlike many management tools that seek to refine what businesses are already doing, reengineering's primary characteristic is that its focus is quantum improvement in performance and cost-effectiveness. Therefore, applying reengineering principles requires that much of what managers know be unlearned.

Of course, the CEO's role in reengineering is central. First, he or she must commit to seeing the process through, and must manage and lead in ways that reinforce that commitment.

Second, CEOs must create an environment that supports and nurtures change by reengineering the company's internal communication channels, education and training effort, reward and recognition systems, and its system of standards and measures.

Finally, the CEO must allocate the management time and financial resources needed for the business to realize reengineering's promise, and for those benefits to be felt all the way to the bottom line.