Is re-engineering a fad?

The term has become a victim of its own success. When every company that downsizes claims it is "re-engineering," the notion of process improvement gets lost. Assembled CEOs agree that change management is here to stay - and probably needs a more useful name.

It's no longer confined to business. When the White House fired its travel department, newspapers referred to the First Lady's re-engineering efforts. When NASA scientists working with the latest Hubble telescope data declared that Pluto may not merit planetary status, even the solar system was said to be downsized.

With the publication of Michael Hammer's "Re-Engineering the Corporation" in 1990, a new industry emerged, led by consultants, academics, and business gums marketing the techniques of business process redesign (BPR). What began as the latest iteration of continuous improvement quickly was seized upon by many companies as a way to improve bottom-line results through expense reduction, better known as downsizing. But that practice has shortchanged the concept: BPR attempts to change the nature of the work, whereas downsizing, in practice, often means the same work is done by fewer people. Nonetheless, the two concepts have become hopelessly linked with re-engineering in the public's mind.

Matters were not improved when James Champy, who along with Hammer was an early re-engineering proselytizer, admitted that some 70 percent of such efforts ended in failure: The companies that attempted to re-engineer ended up as hopelessly top-heavy and cost-ridden as before. "We are seeing way too many amputations before the diagnosis," Peter Drucker told The Wall Street Journal in 1994. And what about the productivity gains? One study from the Center for Economic Studies of the U.S. Census Bureau, covering 14,000 factories over 10 years, declared that operations that increased net employment were as likely to show productivity gains as those that reduced net employment. According to an Arthur D. Little survey, only 16 percent of top executives reported "progress in change" in their re-engineering efforts. Almost 40 percent were "actively unhappy," and the remainder were only partially satisfied. No wonder Alan Weiss, author of "Our Emperors Have No Clothes," writes that re-engineering is "the auto-da-fe of the late 20th century, and many CEOs have become Torquemada."

The link between re-engineering and process change may have been knocked loose, but the need for businesses to change remains. In the following roundtable discussion held in partnership with Andersen Consulting LLP, CEOs agree that whether it is called "process improvement" or "total involvement," a mature form of re-engineering is here to stay. All participants have undergone some degree of change management, the result of which yields a number of percepts:

* Create a sense of urgency if no "crisis" is at hand.

* Identify the value proposition before you start a change process; there's no sense in spending millions if, at the end of the day, you find your costs aren't lower or your service isn't better.

* Proselytize to employees; then coach them through every step.

* Get specific about measuring progress, and look at external benchmarks.

* Set high goals and reward performance.

* "Get people mad at you," says American Standard's Emmanuel Kampouris, "otherwise you're not changing enough." (The first part may well take care of itself.)

A. Barry Patmore, worldwide managing partner of Andersen Consulting's Process Competency group, has observed some 150 companies undergoing various forms of process change/re-engineering. He notes that many companies should not attempt enterprisewide process change, because few organizations are capable of doing everything at once. He also cautions CEOs to recheck the payoff: Re-engineering can cost as much as 10 times early estimates, so make certain the returns are commensurately large.

Other CEOs report that there's a danger in getting trapped in tactical matters that may derail a company's overall plan. On the other hand, ADP's Josh Weston argues that a CEO should be "selectively creep to either demonstrate the importance of a specific program or to contribute some special knowledge." Some participants also argue that the rewards of re-engineering should be shared with the employees who are making the agonizing process changes. "Let's uncap pay," says UCAR International's Bob Krass. Let's also change the "R" word.

HEEDING THE WAKE-UP CALL

A. Barry Patmore (Andersen Consulting LLP): From the 1960s through the mid-1980s, the predominant management philosophy focused on continuous improvement. But in 1990, the concept of re-engineering - mainly, change centered around automation - infiltrated the business press and transformed corporate America's mind-set about how to change the way companies do business. That year, 200 articles referenced re-engineering. In 1995, there were 7,000 references.

In another five years, though, we won't be talking about re-engineering anymore. I haven't the slightest idea what we will call the concept, but I think it is evolving toward a strategy of competing based on process excellence. Like the Mail Boxes, Etc. advertisement, "It's not what we do, it's how we do it."

To successfully develop a process excellence strategy, companies must have a need and a sense of purpose. For many companies, the need is created by a leveraged buyout, a spin-off, a bankruptcy, a crisis, something that pushes them into action. Unfortunately, businesses often fail to realize the level of effort, work, dedication, and leadership required to successfully respond to change. And they don't understand that they must tie their sense of purpose to a value proposition - a strategy that will bring them business and profits - otherwise there's no point in going through the pain and agony of re-engineering.

A friend of mine at a telecommunications company took a corporatewide view of re-engineering. All the executives were conversant with the end results; top managers examined processes across functions; the chairman and president made a tremendous case for re-engineering. But they made two errors that compromised their effectiveness. First, they did not involve their technology people, which narrowed their innovative possibilities. This, in turn, meant they didn't have the technological capability to implement many of the projects they planned. They also tried to optimize lower-level processes they could have outsourced for less money and effort. Simply put: They took their eyes off the strategic processes.

To avoid these pitfalls, companies must address some questions before beginning re-engineering: How do we foster the development of breakthrough processes for innovation? How helpful is benchmarking? Should we focus most of our effort on strategic processes as opposed to taking a holistic approach? How do we get people to perform substantially better with these new processes? How do we use technology and automation in an integrated way?

Charles A. Dickinson (Solectron Corp.): There's one other question: How do we define the changes that are going to take place in the marketplace and figure out what must be done to the enterprise to anticipate them?

Patmore: You're right. Being future-focused is what differentiates mediocre results from outstanding results. Too many companies are trying to optimize their processes and not looking ahead. And in the meantime, the market is running somewhere else. They should be changing their entire approach to the supply chain.

Josh S. Weston (Automatic Data Processing): How do successful companies shake the lethargy and get employees to reach beyond what they normally would? They have a "headset" that acts as a wake-up call, a cold shower. This headset transcends all situations. It becomes a state of mind, reach, and will. The trick is programming the headset to hammer home to employees the fact that changing the business is the most important thing they want to do. This is particularly difficult when the company is not threatened by a crisis.

Patmore: If you don't have a crisis, you need a stronger, more visionary leader. Bill Gates, for example, continuously moves Microsoft from one vision to the next.

Arnold B. Pollard (CE): How does a company ensure it has the right headset?

Weston: There are no guarantees. We subdivided our business geographically, so all our geographic managers have identical business missions and product sets. That means we have internal benchmarking with 44 peers on all the data, not just the profit-and-loss figures. Internal peer group comparisons work very well, because the divisions aren't competing with each other, so they can share stories. One guy's gain is not the other guy's bust.

THE MONEY PIT

Wm. R. Davis (Congress Financial Corp.): So many companies need to be re-engineered, but they take the attitude, "If it ain't broke, don't fix it." It's difficult to move people off that dime.

Dean A. Mefford (Viskase): When I first came to Viskase, a flexible packaging and casing company, it had very little customer focus. I attempted to change that by creating a vision of developing solutions to improve our customers' performance. Thus, the measurement was not what we thought was good, but what our customers thought was good. That drove much of the re-engineering process. We broke down the little fiefdoms that characterized the company and brought the corresponding groups into the fore of our re-engineering.

In past improvement efforts, when somebody didn't like what was going on, he or she dropped out of the committee. So at our first re-engineering meeting, I congratulated everyone on being selected for the team and explained that if they didn't want to participate, they should stop at the payroll office on the way to the parking lot, because they would no longer have a job.

Cross communication and reporting back directly to me has gone a long way toward breaking down the barriers between the different functional groups. People have begun to realize that if they work together with a single purpose - satisfying the customer - we can increase our sales and the solutions we bring to clients. It's a win/win situation for everyone.

R. Randolph Devening (Foodbrands America): When embarking on a process such as re-engineering, it's critical to clearly understand how the enterprise interfaces with the market and how it makes money, a paradigm that constantly changes.

Patmore: One CEO I know attempted to restructure his company's procurement effort. After doing so, costs rose dramatically, and the CEO found himself trying to explain to the board why the company had spent $30 million on re-engineering. The problem was that they hadn't targeted what they were trying to accomplish from a market-value and bottom-line standpoint. Ultimately, they couldn't justify the expense.

Re-engineering always takes a lot more money and effort than you think. My estimates are almost always low. Thus, you have to ensure that the effort will result in a big return on investment. One way to do that is to set specific financial goals. For example, when Pacific Bell began re-engineering, its management set a tangible goal: increase cash flow over the next three to five years by $3 billion.

Wayne P. Yetter (Astra Merck): Clearly, setting financial goals is important, but I'm not sure that is what really motivates people to change the organization. I think it's more about serving customers and developing those relationships. It's a deeper feeling than doubling sales that gets people to commit themselves to re-engineering.

Harry E. Gould Jr. (Gould Paper Corp.): That's true. In a business such as ours where we have an undifferentiated product - paper - we have to realize that it's a people business, a customer-driven business, in particular. For example, two of our major competitors decided to re-engineer in the last year and aimed to substantially increase their returns. To do that, they chose to squeeze the suppliers; cut the salespeople's commissions; and move the warehouses 300 miles from the customer's center, hoping the customer-service people wouldn't relocate, so they could hire people out of college for $25,000 a year instead of $40,000. In the short term, their returns probably will increase. In the long term, they made my company much bigger and stronger.

Mefford: When I joined Viskase, it was a $500 million company. I set the goal of becoming a $1 billion company by the year 2000, with gross margins in the 35 percent range and 10 percent of sales revenue coming from new products every year. When I first said that, I thought we were going to have to bring oxygen into the room to revive the key executive group. But today, everyone in the organization has built that objective into their planning.

Robert P. Krass (UCAR International): Within a 12-month period at my company, we paid off 30 percent of our debt instead of 15 percent over the next seven or eight years. How did that happen? We told people not to worry about meeting the goal, but rather, just to beat themselves, the prior period figures, everything they could. That leads me to wonder if it's necessary to set specific goals or if we should just follow the capitalist approach of seeking forever improvement.

Richard S. Jarman (Butler Manufacturing Co.): I think it's important to have specific longer-term goals. But you will only achieve them if you understand your business and can determine what may stand in the way of accomplishing your objectives. Then you have to set up that specific target area to re-engineer. Meanwhile, the CEO and top management must continue to evaluate and eliminate the choke points to setting new goals.

Jeanette S. Wagner (Estee Lauder International): Aren't we talking about two types of goals here? One is specific, and the other is an overriding emotional umbrella. For example, 10 years ago, we decided we didn't want to be the biggest company; we wanted to be the best - that's our overarching objective. Our motto is, "Second to none." All the other specific goals come below that. Once we reached one of them, we went on to the next. But the overriding emotional goal pervades the entire division, and all the individual objectives relate to that.

J.P. Donlon (CE): What indices do you use to determine that main goal?

Wagner: We bring to bear many values. We would like to be the greatest profit producer for anybody we do business with. We seek to be the most innovative and to always stay ahead of the curve.

Barry N. Naft (Environment International): The hard part is translating your corporate goals into individual strategic goals for people and letting them know they will be measured and recognized by these goals. You'll have trouble with some people; they are good candidates for outsourcing, because they're not contributing to the overall corporate goal.

Emmanuel A. Kampouris (American Standard): Re-engineering is not something you pussyfoot around and do a little here and a little there. Re-engineering is a radical redesign that makes 70 percent of the people mad at you. Some people won't even talk to you after a while. But that's the penalty you pay until you succeed.

When we began our re-engineering effort, we were wallowing in $3.3 billion of debt and the knowledge that we could not survive a recession. We set a target of doubling the static cost of goods, which was 3.2, the Fortune 500 average. Everyone, including senior executives, was paid against that one corporate number, and each month, we published the results of every business unit.

Our other major goal was to eliminate our inventories and non-value-added activity. Ninety percent of the factory work in a cycle is non-value-added. Equipment sits around, products sit around, people walk around and wait. The idea is to shorten the cycle time and deliver to the customer what he wants, where he wants it, as frequently as he wants it. We started a pilot in a small corner of one of our businesses, and it worked. So we adopted this formal, specific, mathematical technique in all our facilities, which meant changing the layout of all our plants, the costing method, the organizational structure, and our training programs.

We had to formally train 35,000 employees in seven languages and 38 countries worldwide. They had to pass an exam. This cost us about $50 million. We have since developed our own college, and have five training groups going on around the world.

Eventually, we applied the technique we used to re-engineer the factory floor to re-engineer our offices. This is done by process management, as conceptualized by Michael Hammer. You have to discover how many processes are required to serve your customer, both internal and external, and then you have to tie everybody together. We have specific measurements for each of the five processes we came up with. We no longer have titles in the company; we have process owners, who control the purse. Thus, the power is in the hands of the process owners. It is a tough thing to do, but it is vital. We also have teams of coaches, an engineering coach, finance coach, IS coach. These are the old bosses, who became mentors because they had narrow expertise in a specific area. They make sure we have the right people in the right places, and they act as specific functional human resources people.

We achieved our inventory goal in 1992, so we decided to try to double our turns again. Everyone said it was impossible, but we did it. We also have doubled our earnings in two years. We hope to double them again in three years. We should be at zero working capital in about two years.

Pollard: Are you a coach or a process owner?

Kampouris: I'm a corporate leader. Our business leaders are in charge of strategy. The process owners head five function processes: managed creation, process development, order acquisition, order fulfillment, and customer services. Coaches have no organization. No one reports to them; they are simply mentors.

Yetter: You originally started off with a financial target, but it also led to significant benefits for customers that I'm sure made employees feel pretty good about their business and where it was going.

Naft: Another benefit is that your people seem to be more amenable to change. And we all know that the organization that is set up to accept change is the one that will win. You can't afford to go through this emotional process every year or two.

THE WALLS COME TUMBLING DOWN

Yetter: When you start a re-engineering effort, abut 70 percent of the people either are fighting change or being indifferent to it. Our experience is somewhat unique in that we had the opportunity to start fresh with a blank sheet of paper, being the resulting company of a joint venture between pharmaceuticals Astra in Sweden and Merck in Whitehouse, NJ. In 1992, we began to formulate a vision for the company, thinking about it from the outside in, from our customers backward, meaning we sought to anticipate where our customers will be in five or 10 years.

Of course, vision is one of those frequently used terms that make people's eyes glaze over when you mention it, but it is really important to have - and it must be driven through the organization. You have to create a shared, compelling vision of the future that people are emotional about and want to achieve. The tension that's formed between that picture of tomorrow and where you are today provides the dissidence that propels you into the future. In addition, we defined an overall mission, the business we would be in, and a strategic intent. Part of that intent was to revolutionize the pharmaceutical industry. That raised a few eyebrows and caused more than a few people to think we had lost our minds.

In the process, we defined who we work with and who we provide value for: our customers, each other as employees, our licensers, and our owners. We also defined our target outcomes, which weren't necessarily tied to dollar goals but rather were statements that addressed issues of speed, how a regulatory body such as the FDA would look at our company, and how our customers would perceive us. That helped us to define the core competencies we would need within our organization. We hammered out a business architecture with six core horizontal processes, each with a customer and functional or skill-centered group that supported it.

We assembled best practices within the pharmaceutical industry into a model company called Pharmco, and assigned a team to re-engineer it consistent with what we called our Vision 2000. We gave another, separate team our vision statement and asked it to evaluate how we could develop drugs and access and satisfy our customers - the FDA, managed-care providers, physicians, and government.

We put those groups together in a war room, one re-engineering a model and the other creating a fresh design. Then a synthesis team put those two concepts together, and we agreed on a final design. Next, we had to implement the plan. We mapped out between 140 and 150 discrete projects and processes, including core financial systems, human resource systems, drug development systems, and adverse-effect reporting systems.

We quickly found that once we began to make progress, a lot changed from when we started. We operate in a fast-moving environment. We correctly anticipated health-care reform and the growth of managed-care systems. But we were probably naive in terms of the speed.

We had to make some adjustments; we didn't dramatically change what we were doing, but we had to accelerate and add some new things. And even though we recruited people we believed were responsive and excited about the opportunity to do new things, when we went through the second round, they said, "What we planned was just fine. Do we really need to change and do it faster?"

The answer, of course, is a resounding "yes." We have a program called Project TRUST, an acronym encompassing our values: truth, responsibility, unity, support, and teamwork. It's meant to get people comfortable with being outside their comfort zone and learning to change.

Patmore: Most people initially resist change and see it as episodic. After a tough status meeting, I was walking down the hall with one of my clients. The project seemed to have been going on for a long time, and although there had been incremental progress, the big change was still way ahead of us. He turned to me and said, "I can hardly wait until we get this project over with so we can get back to normal." [Laughter.]

The fact of the matter is that if the company gets back to normal, it's going to go out of business. Most companies are realizing that re-engineering doesn't go away; it must be institutionalized.

James M. Demitrieus (Sunkyong America): We came up with "Strategy 99" a few years ago to get everybody focused on doing things differently in the next month and the next year and so on. That worked as a kickoff, but you need an effective communicator to reach people throughout the organization so that the message takes hold.

Kampouris: Sometimes it requires a symbolic gesture. By the end of this year, we won't have any private offices in the whole company. Right now, five chief executives in our business sit out in the open with no walls between them and their teams. In the corporate office, we're a little timid. We still have glass walls, so you can see us, but you can't hear us. But we're changing that, as well.

When we had trouble with customer service in our U.S. plumbing division, we tore down the walls and made it one office. Now, when someone gets a query, he gets an instant response, because the team members can just wave and give him the answer instead of saying, "I'll call you Monday." Each process owner has his team right there in front of him.

The response - both from customers and employees - has been terrific. In fact, in one of our facilities in Thailand, employees are still in their separate offices, and they're saying, "This is discrimination. We want out, too." It's going to cost us $3 million to knock the walls down, but they said, "We don't care. We can't be left in our cubicles. We want to be out with the team."

MOVING TARGETS

Robert T. Herres (USAA): We describe the heads of our lines of business as chief operating officers rather than chief executive officers, because all our human resources, training, information systems, communication support, and facility support are provided by central organizations. These executives focus solely on their lines of business and service delivery and activity, but they also realize the need for interdependence throughout the company.

As an insurance and financial-services company, we are trying to keep our products and business lines integrated, because we regard the synergy between our products as a product in itself. It's vital for someone at the bank who is working out a mortgage with a customer to be able to quickly and smoothly hand off the customer to the property casualty company for homeowners' coverage, while simultaneously having someone look at the automobile policy if there's a move involved to see what changes need to be made.

To facilitate this interactivity, we have a tightly integrated planning process. Our strategic and operational planning processes take place each spring and fall within the individual lines of business, culminating in a corporate-level process in which goals are organized around our six key result areas, which include product value, service, and financial strength. Then each line of business builds a set of objectives underneath each of the key result areas. At the end of the year, we measure their achievement.

These are moving targets, because some are subjective and some are objective. Some are quantifiable, and others are not. But they can be evaluated. Even if it's subjective, we can say it was a "stretch" goal, meaning that achieving it this year would have been a big challenge, and our employees did pretty damned good, so we're going to give them a score.

That exercise ends with a briefing to the board, which gives us a corporate evaluation, without me present. The Finance and Audit Committees assess three of the key result areas and all the goals, while the Personnel and Membership Committee does the same for the other three. After each management conference, we brief about 600 or 700 of our mid-managers with everybody in the company - including those in our regional offices - watching on our closed circuit television system if they wish. It's a highly visible, well-understood system.

The goals and objectives are critical to keeping us moving. A worthwhile objective may have nothing to do with increasing revenue or profit. It may have to do with delivering better service. Usually we find that the financials take care of themselves when you constantly deliver better service.

The final ingredient is building the loyalty of the customer and the work force together. The best things we've done in re-engineering have come about when we asked the work force how to reinvent a cumbersome process.

Pollard: Your business seems to lend itself to business process transformation wherein technology replaces traditional middle management. How do you address that problem and maintain employee loyalty?

Herres: That's a serious concern of mine, and I'm doing everything I can to preempt it. We've been blessed in that we've been growing about 5 percent a year over the last 20 years. Our growth goal now is to ensure that our minimum growth will sustain the viability of the enterprise and absorb the segments of the work force that are set free by increased, improved efficiencies.

We don't guarantee that these employees will keep the same job. Some may have to regress a little, although we have some salary guarantees for certain periods of time. We put people into a talent pool and try to facilitate mobility across the lines of business. Our turnover is quite low.

WHO'S INVOLVED?

Donlon: What is the key element that makes re-engineering work?

Krass: You have to get everyone in the company to participate in the whole process and share in its profits.

Kampouris: Total involvement is a necessary ingredient, meaning all employees must be both emotionally and financially involved. Our company motto is that we want a thousand millionaires by the year 2000 on our work force. And we're getting there: Thirty percent of our company is owned by its employees.

John F. McNamara (AmeriSource Health Corp.): We're a little more modest about our goals: We hope to have 100 millionaires in our company going forward. We push the authority and responsibility as far down in the organization as we can. We operate on a decentralized basis with profit centers. Some 200 people have equity in the organization.

Vincent J. Naimoli (Harvard Industries): Total involvement is fine, but it must be done with a bottom-up approach. We ask people what the problems are and what the objectives are. If it's a quality problem, our people know what it takes to cure it. If it's a cost problem, we try to set the cost so that everyone in the company thinks every penny spent is a penny spent out of their own pocket.

Dickinson: The key for us is making certain that all our people understand the service our customers require of them. To do that, we ask each of our customers on every project to give us a report card on how well we're doing for them. Then the organization responsible for delivering that service reviews the report card and makes changes accordingly.

Mefford: We're trying to become a selling organization focused on the customer. We're a business-to-business marketing organization, so we have to provide the customer with a solution that gives him or her better productivity and better returns - a total value package.

Klaus G. Dorfi (Atlantic Mutual Cos.): I think process excellence is the way to compete. If you focus on that, the financial results will follow.

Davis: We've been able to avoid the crisis management issues or the triage of having to re-engineer by taking down to the lowest level of the company the feeling that employees should question everything they do: how they do it, when they do it, why they do it, with an eye toward serving the customer. We have a constant employee review process and a suggestion program in which the smallest idea that comes up through the system is tested to see whether it will improve what we do for the customer.

Patmore: Companies must create a vision for themselves, value for customers and shareholders, and an embedded culture and capability to continuously improve for their employees. Re-engineering is not a one-time phenomenon. It's a matter of survival.

RELATED ARTICLE: A Who's Who Of Roundtable Participants

Wm. R. Davis is president of Congress Financial Corp., the asset-based lending subsidiary of CoreStates Financial in Philadelphia, with $6 billion in committed lines of credit.

James M. Demitrieus is president and CEO of Sunkyong America in New York, the $2 billion international trading and financial-services arm of $20 billion Sunkyong Group in Korea.

R. Randolph Devening is chairman, president, and CEO of $750 million Foodbrands America based in Oklahoma City, a maker of processed perishable food products.

Charles A. Dickinson is chairman of Milpitas, CA-based Solectron Corp., a $2.1 billion contract assembler of electronic equipment.

Klaus G. Dorfi is president and chief operating officer of Atlantic Mutual Cos. in New York, a property and casualty insurance company with $700 million in premiums.

Harry E. Gould Jr. is chairman and president of $830 million Gould Paper Corp., a New York-based paper distributor.

Robert T. Herres is chairman and CEO of San Antonio, TX-based USAA, a $6.56 billion insurance and financial-services company that owns and manages $38.8 billion in assets.

Richard S. Jarman is president of the $500 million Buildings Division of Butler Manufacturing Co., an $830 million non-residential construction company in Kansas City, MO.

Emmanuel A. Kampouris is chairman, president, and CEO of Piscataway, NJ-based American Standard, a $5.2 billion diversified manufacturing company (air conditioning, plumbing equipment, and automotive products).

Robert P. Krass is chairman, president, and CEO of UCAR International in Danbury, CT, a $901 million manufacturer of graphite and carbon products.

John F. McNamara is chairman, president, and CEO of $4.7 billion AmeriSource Health Corp., a Malvern, PA-based pharmaceutical distribution company.

Dean A. Mefford is president and CEO of Chicago-based Viskase, a $560 million flexible packaging and casing company.

Barry N. Naft is president and CEO of $500 million Environment international in Rockville, MD, an environmental, remediation, and strategic chemical management firm.

Vincent J. Naimoli is chairman, president, and CEO of Harvard Industries in Tampa, FL, an $856.8 million automotive components concern.

A. Barry Patmore is worldwide managing partner of Andersen Consulting LLP's Process Competency group. Andersen is a $3.45 billion management consulting firm with headquarters in Chicago and New York.

Jeanette S. Wagner is president of New York-based Estee Lauder International, a division of $3 billion Estee Lauder Cos., a manufacturer of personal-care products.

Josh S. Weston is chairman and CEO of $3 billion-plus Automatic Data Processing in Roseland, NJ, a provider of computing services.

Wayne P. Yetter is president and CEO of Wayne, PA-based Astra Merck, a $1.3 billion pharmaceuticals joint venture owned by Whitehouse Station, NJ-based Merck & Co. and Sweden's Astra AB.

RELATED ARTICLE: Seven Deadly Sins Of Re-Engineering

Re-engineering consultants agree that not everyone does it right. Here are their takes on the major mistakes - and some of the companies they think have made them.

1. Focusing on planning rather than doing. As Michael Hammer critiques in his new book, "The Re-engineering Revolution," each of a rapidly obsolescing high-technology company's 25 process teams spent more than a year immersed in identifying current problems instead of finding ways to solve them.

2. Re-engineering the wrong process(es). Some years ago, Wang Laboratories decided it needed to re-engineer its customer-service operation, expanding it company-wide to win back sales. But the real problem, as one observer quips, "was that it was the 1990s, and a Wang word processor barely even had a page break in it." Nonetheless, the company focused its energy on the customer-service initiative, which, absent better products, was doomed to failure.

3. Compressing the time needed to succeed. At former Fortune 500 conglomerate Figgie International, a program to modernize and automate shop-floor processes at several divisions initially was planned to take five years. But when recession struck in the early 1990s, revenue-pressed Figgie accelerated the program to a mere 18 months. This wreaked havoc with production schedules, while the extensive borrowing needed to finance the program brought the company to the brink of bankruptcy.

4. Not understanding the total financial impact. Marshall Meyer, professor of management and sociology at the Wharton School, likens re-engineering to playing with Silly Putty: "Often you push in one area only to find that the cost has popped out in another," he says.

5. Failing to consider the effect on people. At AT&T, corporate image makers recently scurried to put a better spin on the company's decision to re-engineer and restructure 40,000 jobs out of existence. The reams of bad publicity and ill will among workers dragged down the stock price, leading the company to backpedal and imply that the numbers might not be so huge after all.

6. Lacking the visible sponsorship of senior management. A Midwestern electric power utility profiled in Hammer's book appointed a re-engineering committee, which, after a year of work, presented bold recommendations for change. Employees were impressed, but interest quickly cooled when the chairman appeared unenthusiastic about the plan - which soon died from lack of support.

7. Using re-engineering to avoid making hard decisions. A few years ago, troubled Greyhound Lines decided the key to future success was to re-engineer its reservation system to the point where it could analyze ridership and 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. By constantly promising that the new reservation process would dramatically alter its business, management delayed the move that ultimately proved inevitable.

- Meryl Davids

RELATED ARTICLE: Why They Don't Tell You In Re-Engineering School

Baffled by the myriad re-engineering buzzwords being bandied about the office? Here's a quick crib sheet to bring you up to speed.

* Re-Engineering. The trailblazing managerial procedure by which a corporation finally admits that absolutely nothing works anymore. Previously known as "Tearing the Company Apart from Top to Bottom." Example: "Harry, we've decided to re-engineer your department after 25 years of non-improvement. Adios."

* Continuous Incremental Improvement. A byzantinely subtle process by which employees are encouraged to do their jobs better than they have done them in the past. Previously known as "Learning the Ropes." Example: "Harry, you've been doing this same job for 25 years, and we haven't seen much in the way of continuous incremental improvement. You're outta here."

* Cross-Functional Teams. A cunning procedure in which corporations delicately fuse the talents of employees whose jobs really don't have all that much to do with each other. Previously known as "Teamwork." Example: "Some members of our cross-functional team built the engine, other members of our cross-functional team built the chassis, still other members of our cross-functional team installed the windshield. Isn't it amazing what our cross-functional teams can achieve when they all pull together?"

* Distributed Decisions. The iconoclastic practice of allowing employees at all levels of a corporation to make their own decisions, so that it will be easier to figure out precisely who to blame when everything goes completely wrong. Previously known as "The Buck Stops Here." Example: "According to our distributed-decisions flow chart here, Harry, your cross-functional team has been falling down in the continuous incremental improvement department. You've got until Monday to do something about it."

* Downsizing. The ingenious policy of getting rid of people involved in the distributed decisions process who consistently have made the wrong decision for the past 25 years. Previously known as "Firing." Example: "According to our distributed decisions flow chart here, your cross-functional team has been falling down in the continuous incremental improvement department, Harry. You're downsized."

* Outsourcing. The revolutionary policy of paying outside suppliers half as much money as you're presently paying your own employees to produce a needed part that actually gets delivered the same decade you ordered it. Previously known as "Shopping Around for a Better Price." Example: "Harry, you and the rest of the clowns in this department are getting downsized. From here on in, we're outsourcing."

* Streamlining. The groundbreaking, millennial stratagem by which a corporation manages to divest itself of people like Harry. Previously known as "Unloading Dead Wood." Example: "As part of our ongoing streamlining process, Harry, we'd really like it if you were off the premises by sundown."

- Joe Queenan

RELATED ARTICLE: Re-Engineering With A Grain Of Salt

Are companies so busy bowing at the re-engineering altar that they can't see what their businesses really need? That's one concern of some CEOs, professors, and consultants who believe re-engineering garners more attention than it deserves.

"Re-engineering to save time, energy, personnel, or money is a good thing," says Donald Frey, professor of industrial engineering and management science at Northwestern University. "But it has nothing to do with growth - the ultimate goal of every company." It's much easier, Frey believes, to let the bean counters "squeeze the turnip," than it is to develop better products, break into new markets, and improve sales through creative marketing.

That sentiment is echoed by Michael A. McLain, president and CEO of DowBrands - which recently streamlined its process of working with customers, from ordering to delivery. McLain believes too many companies have forgotten re-engineering is simply a means to an end, not the end itself. "I think a number of companies, particularly in the consumer-packaged goods business, have overdone changes in their trade/marketing processes, when the key to their business should be looking at their products, not at their processes."

"Re-engineering has been deified as the change effort, but it's really one of a number of tools necessary to bring about change," adds Willard Zangwill, professor of management science at the Graduate School of Business at the University of Chicago. Pointing to the high number of re-engineering failures among companies, Zangwill says, "I have to ask myself whether all these people are stupid; maybe the reason so many efforts fail is that there is a flaw in the concept."

BBDO Worldwide Chairman and CEO Allen Rosenshine thinks re-engineering has been subjected to so much hype, because "the prophets who want to make a living preaching the re-engineering gospel have to be able to show successes - and sometimes successes that are only temporary are good enough."

Even Bob Suh, a managing director at CSC Index, the company that, as home to "Reengineering the Corporation" co-author James Champy, practically invented the process, admits things may have gone too far. "Many of the re-engineering programs companies have undertaken were very necessary, but others have re-engineered things that probably didn't need to be."

So why is corporate America worshipping the concept? Suh offers one theory: "The stock market is now in the promise-driven phase," he says. Without worry about delivering, CEOs can make a big promise and watch their stock rise. Because of this, he says, "there is great incentive for companies to do grand things." And re-engineering has become one of the grandest of them all.

- Meryl Davids