Restructuring Organizations:Downsizing, Application Stages, Reengineering

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Organization Development MGMT 628

Lesson 35

Restructuring Organizations

Network-Based Structures:

A network-based structure manages the diverse, complex, and dynamic relationships among multiple

organizations or unit5, each specializing in a particular business junction or task. Sonic contusion over the

definition of a network has been clarified recently by a typology describing four basic types of networks.

· An internal market network exists when a single organization establishes each subunit as an

independent profit center that is allowed to buy and sell services and resources from each other as

well as from the external market. Asea Brown Boveri's (ABB) fifty worldwide businesses consist of

twelve hundred companies organized into forty-five hundred profit centers that conduct business

with each other.

· A vertical market network is composed of multiple organizations linked to a focal organization that

coordinates the movement of resources from raw materials to end consumer. Nike, for example,

has its shoes manufactured in different plants and then organizes their distribution through retail

outlets.

· An inter-market network represents alliances among a variety of organizations in different markets

and is exemplified by the Japanese keiretsu and the Korean chaebol.

· An opportunity network is the most advanced form of network structure. It is a temporary

constellation

organizations

brought

together

pursue

single

purpose. Once accomplished, the network disbands.

These types of networks can be distinguished from one another in terms of whether they are single or

multiple organizations, single or multiple industry, and stable or temporary. For example, an internal market

network is a stable, single-organization, single-industry structure; an opportunity network is a temporary,

multiple-organization structure that can span several different industries.

As shown in Figure 46, the network structure redraws organizational boundaries and links separate business

units to facilitate task interaction. The essence of networks is the relationships among organizations that

perform different aspects of work. In this way, organizations do the things that they do well; for example,

manufacturing expertise is applied to production, and logistical expertise is applied to distribution. Network

organizations use strategic alliances, joint ventures, research and development consortia, licensing

agreements, and wholly owned subsidiaries to design, manufacture, and market advanced products, enter

new international markets, and develop new technologies.

Network-based structures are known by a variety of names, including shamrock organizations and virtual,

modular, or cellular corporations. Less formally, they have been described as "pizza" structures, spider

webs, starbursts, and cluster organizations. Companies such as Apple Computer, Benetton, Sun

Microsystems, Liz Claiborne, MCI WorldCom, and Merck have implemented fairly sophisticated vertical

market and inter-market network structures. Opportunity networks also are commonplace in the

construction, fashion, and entertainment industries, as well as in the public sector.

Figure 46: The Network Organization

Network structures typically have the following characteristics.

Organization Development MGMT 628

Vertical desegregation. This refers to the breaking up of the organization's business functions, such

as production, marketing, and distribution, into separate organizations performing specialized work. In

the film industry, for example, separate organizations providing transportation, cinematography, special

effects, set design, music, actors, and catering all work together under a broker organization, the studio.

The particular organizations making up the opportunity network represent au important factor in

determining its success.'" More recently, disintermediation, or the replacement of whole steps in the

value chain by information technology, specifically the Internet, has fueled the development and

numbers of network structures.

Brokers. Networks often arc' managed by broker organizations that locate and assemble member

organizations. The broker may play a central role and subcontract for needed products or services, or it

may specialize in linking equal partners into a network. In the construction industry, the general

contractor typically assembles and manages drywall, mechanical, electrical, plumbing, and other

specialties to erect a building.

Coordinating mechanisms. Network organizations generally are not controlled by hierarchical

arrangements or plans. Rather, coordination of the work in a network falls into three categories:

informal relationships, contracts, and market mechanism. First, coordination patterns can depend

heavily on interpersonal relationships among individuals who have a well-developed partnership.

Conflicts are resolved through reciprocity; network members recognize that each likely will have to

compromise at some point. Trust is built anti nurtured over time by these reciprocal arrangements.

Second, coordination can be achieved through formal contracts, such as ownership control, licensing

arrangements, or purchase agreements. Finally, market mechanisms, such as spot payments,

performance accountability, and information systems, ensure that all parties are aware of each others'

activities.

Network structures have a number of advantages and disadvantages, as shown

in Table 16. They are highly flexible and adaptable to changing conditions. The ability to form partnerships

with different organizations permits the creation of a "best-of-the-best" company to exploit opportunities,

often global in nature. They enable each member to exploit its distinctive competence. They can

accumulate and apply sufficient resources and expertise to large, complex tasks that single organizations

cannot perform. Perhaps most important, network organizations can have synergistic effects whereby

members build on each other's strengths and competencies, creating a whole that exceeds the sum of its

parts.

Table 16

Advantages, Disadvantages and Contingencies of the Network-Based Form

Advantages

Disadvantages

Contingencies

· Managing lateral relations

· Highly complex and

Enables highly flexible

and adaptive response to

across

autonomous

uncertain environments

· Organizations of all sizes

organizations is difficult

dynamic environments

· Motivating members to

Creates a "best-of-the-

· Goals of organizational

best" organization to

relinquish autonomy to

specialization

and

focus

resources

join the network is

innovation

troublesome

customer and market

· Highly

uncertain

· Sustaining membership

needs

technologies

and benefits can be

Enables

each

· Worldwide operations

problematic

organization to leverage a

· May give partners access

distinctive competency

proprietary

Permits rapid global

knowledge/technology

expansion

Can produce synergistic

results

The major problems with network organizations are in managing such complex structures. Galbraith and

Kazanjian describe network structures as matrix organizations extending beyond the boundaries of single

firms but lacking the ability to appeal to a higher authority to resolve conflicts. Thus, matrix skills of

managing lateral relations across organizational boundaries arc critical to administering network structures.

Most organizations, because they are managed hierarchically, can be expected to have difficulties managing

lateral relations. Other disadvantages of network organizations include the difficulties of motivating

Organization Development MGMT 628

organizations to join such structures and of sustaining commitment over time. Potential members may not

want to give up their autonomy to link with other organizations and, once linked, they may have problems

sustaining the benefits of joining together. This is especially true if time network consists of organizations

that are not the "best of breed." Finally, joining a network may expose the organization's proprietary

knowledge and skills to others.

As shown in Table 16, network organizations are best suited to highly complex and uncertain environments

where multiple competencies and flexible responses are needed. They seem to apply to organizations of all

sizes, and they deal with complex tasks or problems involving high interdependencies across organizations.

Network structures fit with goals that emphasize organization specialization and innovation.

Downsizing:

Downsizing refers to interventions aimed at reducing the site of the organization. This typically is

accomplished by decreasing the number of employees through layoffs, attrition, redeployment, or early

retirement or by reducing the number of organizational units or managerial levels through divestiture,

outsourcing, reorganization, or delayering. In practice, downsizing generally involves layoffs where a certain

number or class of organization members is no longer employed by the organizations. Although

traditionally associated with lower-level workers, downsizing increasingly has claimed the jobs of staff

specialists, middle managers, and senior executives.

An important consequence of downsizing has been the rise of the contingent workforce. These less

expensive temporary or permanent part-time workers often are hired by the organizations that just laid elf

thousands of employees. A study by the American Management Association found that nearly a third of the

720 firms in the sample had rehired recently terminated employees as independent contractors or

consultants because time downsizings had not been matched by an appropriate reduction in or redesign of

the workload. Overall cost reduction was achieved by replacing expensive permanent workers with a

contingent workforce.

Downsizing is generally a response to at least four major conditions. First, it is associated increasingly with

mergers and acquisitions. One in nine job cuts during 1998 were the result of the integration of two

organizations; second, it can result from organization decline caused by loss of revenues and market share

and b1 technological and industrial change. In southern California, an economy traditionally dependent on

the defense industry, more than one hundred thousand jobs have been lost to relocation or elimination as

that industry has contracted and consolidated. Third, downsizing can occur when organizations implement

one of the new organizational structures described above. For example, creation of network- based

structures often involves outsourcing work to other firms that is not essential to the organization's core

competence. Fourth, downsizing can result from beliefs and social pressures that smaller are better. In the

United States; there is strong conviction that organizations should be leaner and more flexible. Hamel and

Prahalad warned, however, that organizations must be careful that downsizing is not a symptom,

"corporate anorexia." Organizations may downsize for their own sake and not think about future growth.

They may lose key employees who are necessary for future success, cutting into the organization's core

competencies and leaving a legacy of mistrust among members. In such situations, it is questionable

whether downsizing is developmental as defined in OD.

Application Stages:

Successful downsizing interventions tend to proceed by the following steps:

1. Clarify the organization's strategy. As a first step, organization leaders specify corporate strategy

arid communicate clearly how downsizing relates to it. They seek to inform members that

downsizing is not a goal h itself, hut a restructuring process for achieving strategic' objectives.

Leaders need to provide visible and consistent support throughout the process. They can provide

opportunities for members to voice their concerns, ask questions, and obtain counseling if

necessary.

2. Assess downsizing options and make relevant choices. Once corporate strategy is clear, the

full range of downsizing options can he identified and assessed. Table 17 describes three primary

downsizing methods: workforce reduction, organization redesign, and systemic change. A specific

downsizing strategy may Use elements of all three approaches. Workforce reduction is aimed at

reducing the number of employees, usually in a relatively short timeframe. It can include attrition,

retirement incentives, outplacement services, and layoffs. Organization redesign attempt to

restructure the firm to prepare it for the next stage of growth. This is a medium term approach that

can be accomplished by merging organizational units, eliminating management layers, and

redesigning tasks. Systemic change is a longer-term option aimed at changing the culture and

strategic orientation of the organization. It can involve interventions that alter the responsibilities

Organization Development MGMT 628

and work behaviors of everyone in the organization and that promote continual improvement as a

way of life in the firm.

Case, a manufacturer of heavy construction equipment, used a variety of methods to downsize,

including eliminating money-losing product lines; narrowing the breadth of remaining product

lines; bringing customers to the company headquarters to get their opinions of new product design

(which surprisingly resulted in maintaining, rather than changing, certain preferred features, thus

holding down redesign costs); shifting production to outside vendors, restructuring debt; amid

spinning off most of its 250 stores. Eventually, these changes led to closing five plants and to

payroll reductions of almost 35 percent. The number of jobs lost would have been much greater,

however, if Case had not implemented a variety of downsizing methods.

Unfortunately, organizations often choose obvious solutions for downsizing, such as layoffs,

because they can be implemented quickly. This action produces a climate of fear and defensiveness

as members focus on identifying who will be separated from the organization. Examining a broad

range of options and considering the entire organization rather than only certain areas can help

allay tears favoritism and polities are the bases for downsizing decisions. Moreover, participation of

organization members in such decisions can have positive benefits. It can create a sense of urgency

for identifying and implementing options to downsizing other than layoffs. Participation can

provide members with a clearer understanding of how downsizing will proceed and can increase

the likelihood that whatever choices are made are perceived as reasonable and fair.

3. Implement the changes. This stage involves implementing methods for reducing the size oh

time organization. Several practices characterize successful implementation. First, downsizing is

best controlled from the top down. Many difficult decisions are required, and a broad perspective

helps to overcome people's natural instincts to protect their enterprise or function. Second,

identify arid target specific areas of inefficiency and high cost. The morale of the organization can

be hurt if areas commonly known to be redundant are left untouched. Third, link specific actions

to the organization's strategy. Organization members need to be reminded consistently that

restructuring activities are part of a plan to improve the organization's performance. Finally,

communicate frequently using a variety of media. This keeps people informed, lowers their anxiety

over the process, and makes it easier for them to focus on their work.

Table 17

Three Downsizing Tactics

Downsizing Tactic

Characteristics

Examples

Workforce reduction

Aimed at headcount reduction

Attrition

Short-term implementation

Transfer and outplacement

Fosters a transition

Retirement incentives

Buyout packages

Layoffs

Organization redesign

Aimed at organization change

Eliminates functions

Moderate-term implementation

Merge units

Fosters transition and potentially Eliminate layers

transformation

Eliminate products

Redesign tasks

Systemic redesign

Aimed at culture change

Change responsibility

Long-term implementation

Involve all constituents

Fosters transformation

Foster continuous improvement

and innovation

Simplification

Downsizing a way of life

4. Address the needs of survivors and those who leave. Most downsizing eventually involves reduction

in the size of the workforce, and it is important to support not only employees who remain with the

organization but also those who leave. When layoffs occur, employees are generally asked to take on

additional responsibilities and to lean new jobs, often with little or no increase in compensation. This added

workload can he stressful, arid when combined with anxiety over past layoffs and possible future ones, it

can lead to what researchers have labeled time "survivor syndrome." This syndrome involves a narrow set

of self-absorbed and risk-averse behaviors that can threaten the organization's survival. Rather than

working to ensure the organization's success, survivors often are preoccupied with whether additional

layoffs will occur, with guilt over receiving pay and benefits while co workers are struggling with

termination, and with the uncertainty of career advancement.

Organization Development MGMT 628

Organizations can address these survivor concerns with communication processes that increase the amount

and frequency of information provided. Communication should shift from explanations about who left or

why to clarification of where the Company is going, including its visions, strategies, and goals. The linkage

between employees' performance and strategic success is emphasized so that remaining members feel they

are valued. Organizations also can support survivors through training and development activities that

prepare them for the new work they are being asked to perform. Senior management can promote greater

involvement in decision making, thus reinforcing the message that people are important to the future

success and growth of the organization.

Given the negative consequences typically associated with job loss, organizations have developed an array

of methods to help employees who have been laid off. These include outplacement counseling, personal

and family counseling, severance packages, office support for job searches, relocation services, and job

retraining. Each service is intended to assist employees in their transition to another work situation.

1. Follow through with growth plans. This final stage of downsizing involves implementing an

Organization renewal and growth process. Failure to move quickly to implement growth plans is a key

determinate of ineffective downsizing For example, a study of 1,020 human resource directors reported

that only 44 percent of the companies that had downsized in the previous live years shared details of their

growth plans with employees; only 34 percent told employees how they would lit into the company's new

strategy. Organizations must ensure that employees understand the renewal strategy and their new roles in

it. Employees need credible expectations that, although the organization has been through a tough period,

their renewed efforts can move it forward.

Results of Downsizing:

The empirical research on downsizing is mostly negative. A review conducted by the National Research

Council concluded, "From the research produced thus tar, downsizing as a strategy for improvement has

proven to be, by and large, a failure." A number of studies base documented the negative productivity and

employee consequences. One survey of 1,005 companies that used downsizing to reduce costs reported

that fewer than half of the firms actually met cost targets. Moreover, only 22 percent of the companies

achieved expected productivity gains, and consequently about 80 percent of the firms needed to rehire

some of the same people that they had previously terminated. Fewer than 33 percent of the companies

surveyed reported that profits increased as much as expected, and only 21 percent achieved satisfactory

improvements in shareholder return on investment. Another survey of 1,142 downsized firms found that

only about a third achieved productivity goals.39 In addition, the research points to a number of problems

at the individual level, including increased stress and illness, loss of sell-esteem, reduced trust and loyalty,

and marriage and family disruptions.

Research on the effects of downsizing on financial performance also shows negative results. One study

examined an array of financial performance measures, such as return on sales, assets, and equity, in 210

companies that announced layoffs. It found that increases in financial performance in the first year

following the layoff announcements were not followed by performance improvements in the next year. In

no case did a firm's financial performance after a layoff announcement match its maximum levels of

performance in the year before the announcement. These results suggest that layoffs may result in initial

improvements iii financial performance, hut such gains are temporary and not sustained at even pre-layoff

levels. In a sin3ilar study of sixteen firms that wrote off more than 10 percent of their net worth in a live-

year period, stock prices, which averaged 16 percent below the market average before the layoff

announcements, increased on the day that the restructuring was announced but then began a steady decline.

Two years after the layoff announcements, ten of the sixteen stocks were trading below the market by 17

percent to 48 percent, and twelve of the sixteen were below comparable firms in their industries by 5 to 45

percent.

These research findings paint a rather bleak picture of the success of downsizing. The results must be

interpreted cautiously, however, for three reasons.

First, many of the survey-oriented studies received responses from human resources specialists who might

have been naturally inclined to view downsizing in a negative light.

Second, the studies of financial performance may have included a biased sample of firms. If the companies

selected for analysis had been poorly managed, then downsizing alone would have been unlikely to improve

financial performance. There is some empirical support for this view because low-performing firms are

more likely to engage in downsizing than are high-performing firms.

Third, disappointing results may be a function of the way downsizing was implemented. A number of

organizations have posted solid financial returns following downsizing, such as Florida Power and Light,

General Electric, Motorola, Texas instruments, Boeing, Chrysler, and Hewlett-Packard. A study of thirty

Organization Development MGMT 628

downsized firms in the automobile industry showed that those companies that implemented effectively the

process described above scored significantly higher on several performance measures than did firms that

had no downsizing strategy or that implemented the steps poorly. Several studies have suggested that where

downsizing programs adopt appropriate CD interventions or apply strategies similar to the process outlined

above, they generate more positive individual and organizational results. Thus, the success of downsizing

efforts may depend as much on how effectively the intervention is applied as on the size of the layoffs or

the amount of delayering.

Reengineering:

The final restructuring intervention is reengineering--the fundamental rethinking and radical redesign of

business processes to achieve dramatic improvements in performance Reengineering transforms how

organizations traditionally produce and deliver goods and services. Beginning with the Industrial

Revolution, organizations have increasingly fragmented work into specialized units, each focusing on a

limited pan of the overall production process. Although this division of labor has enabled organizations to

mass-produce standardized products and services efficiently, it can be overly complicated, difficult to

manage, and slow to respond to the rapid and unpredictable changes experienced by many organizations

today. Reengineering addresses these problems by breaking down specialized work units into more

integrated, cross-functional work processes. This streamlines work processes and makes them faster and

more flexible; consequently they are more responsive to changes in competitive conditions, customer

demands, product life cycles, and technologies.

As might be expected, reengineering requires an almost revolutionary change in how organizations design

their structures and their work. It addresses fundamental issues about why organizations do what they do,

and why do they do it in a particular way. Reengineering identifies and questions the often unexamined

assumptions underlying how organizations perform work. This effort typically results in radical changes in

thinking and work methods a shift front specialized job, tasks, and structures to integrated processes that

deliver value to customers. Such revolutionary change differs considerably from incremental approaches to

performance improvement, such as continuous improvement and total quality management, which

emphasize Incremental changes in existing work processes. Because reengineering radically alters the status

quo, it seeks to produce dramatic Increases In organization performance.

In radically changing business processes, reengineering frequently takes advantage of new Information

technology. Modern information technologies, such as teleconferencing, expert systems, shared databases,

and wireless communication, can enable organizations to reengineer. They can help organizations to break

out of traditional ways of thinking about work and embrace entirely new ways of producing and delivering

products. At IBM Credit, for example, an integrated information system with expert systems technology

enables one employee to handle all stages of the credit-delivery process. This eliminates the handoffs,

delays, and errors that derived from the traditional work design, in which different employees performed

sequential tasks.

Whereas new information technology can enable organizations to reengineer themselves, existing

technology can thwart such efforts.4' Many reengineering projects fail because existing information systems

do not provide the data needed to operate integrated business processes. The systems do not allow

Interdependent departments to interface with each other they often require new Information to be entered

by hand into separate computer systems before people in different work areas can access it. Given the

inherent difficulty in trying to support process-based work with specialized information systems,

organizations have sought to develop information technologies that are more suited to reengineered work.

The most popular software system, SAR was developed by a German company of the same name. With

SAI firms can standardize their information systems because the software processes data on a range of

tasks and links ft all together, thus integrating the information flow among different pans of the business.

Because they believe that SAP may be the missing technological link to reengineering, many of the largest

consulting firms that provide reengineering services, such as Anderson Consulting, Deloitte Touché, and

Price water house Coopen, have developed their own SAP consultants.

Reengineering also is associated with interventions having to do with downsizing, the shift from functional

to process-based structures, and work design. Although these Interventions have different conceptual and

applied backgrounds, they overlap considerably in practice. Reengineering can result in production and

delivery processes that require fewer people and fewer layers of management. Conversely, down sizing may

require subsequent reengineering interventions. When downsizing occurs without fundamental changes in

how work is performed, the same tasks simply are being performed with a smaller number of people. Thus,

expected cost savings may not be realized because lower productivity offsets lower salaries and fewer

benefits.

Reengineering also can be linked to transformation of organization structures and work design. Its focus on

work processes helps to break down the vertical orientation of functional and self-contained--unit

Organization Development MGMT 628

organizations. The endeavor identifies and assesses core business processes and redesigns work to account

for key task interdependencies running through them. That typically results in new jobs or teams that

emphasize multifunctional tasks, results-oriented feedback, and employee empowerment characteristics

associated with motivational and socio-technical approaches to work design. Regrettably, reengineering has

failed to apply these approaches attention to individual differences in people's reactions to work to its own

work-design prescriptions. It advocates enriched work and teams, without consideration for the wealth of

research that shows that not all people are motivated to perform such work.

Application Stages:

Reengineering is a relatively new intervention and is still developing applied methods. Early applications

emphasized identifying which business processes to reengineer and technically assessing the work flow.

More recent efforts have extended reengineering practice to address issues of managing change, such as

how to deal with resistance to change and how to manage the transition to new work processes. The

following application steps are included in most reengineering efforts, although the order may change

slightly from one situation to another.

1. Prepare the organization. Reengineering begins with clarification and assessment of the

organization's

context,

including

its

competitive

environment,

strategy, and objectives. This effort establishes the need for reengineering and the strategic

direction that the process should follow. Changes in an organization' competitive environment can

signal a need for radical change in how it does business. As preparation for reengineering at GTE

Telephone Operations, for example, executives determined that although deregulation had begun

with coin-operated telephones and long-distance service, it soon would spread to the local

network. They concluded that this would present an enormous competitive challenge and that the

old way of doing business, reinforced by years of regulatory protection, would seriously saddle the

organization with high costs.

2. Specify organization strategy and objectives. The business strategy determines the focus of

reengineering and guides decisions about the business processes that are essential for strategic

success. In the absence of such information, the organization may reengineer extraneous processes

or ones that could be outsourced. GTE executives recognized that the keys to the firm's success in

a more competitive environment were low costs and customer satisfaction. Consequently, they set

dramatic goals of doubling revenues while halving costs and reducing product development time

by 75 percent. Defining these objectives gave the reengineering effort a clear focus. A final task in

this preparation step is to communicate clearly throughout the organization why reengineering is

necessary and the direction it will lake. GTE's communications program lasted a year and a half,

and helped ensure that members understood the reasons underlying the program and the

magnitude of the changes to be made. Senior executives were careful to communicate, both

verbally and behaviorally, that they were fully committed to the change effort. Demonstration of

such unwavering support seems necessary if Organization members are to challenge their

traditional thinking about how business should he conducted.

3. Fundamentally rethink the way work gets done. This step lies at the heart of reengineering and

involves these activities: identifying and analyzing core business processes, defining their key

performance objectives, and designing new processes. These tasks are the real work of

reengineering and typically are performed by a cross-functional team who is given considerable

time and resources to accomplish them.

Identify and analyze core business processes. Core processes are considered essential for

strategic success. They include activities that transform inputs into valued outputs. Core processes

typically are assessed through development of a process map that lists the different activities

required to deliver an organization's products or services. GTE determined that its core processes

could be characterized as "choose, use, and pay." Customers first choose a telephone carrier, then

use its services, and pay for them. GTE developed a process map for these core processes that

included the work flow for getting customers to choose, use, and pay for the firm's service.

Analysis of core business processes can include assigning costs to each of the major phases of the work

flow to help identify costs that may be hidden in the activities of the production process. Traditional cost-

accounting systems do not store data in process terms; they identify costs according to categories of

expense, such as salaries, fixed costs, and supplies. This method of cost accounting can he misleading and

can result in erroneous conclusion about how best to reduce costs.

For example, the material control department at a Dana Corporation plant in Plymouth, Minnesota,

changed from a traditional to a process-based accounting system. The traditional accounting system

Organization Development MGMT 628

showed that salaries and fringe benefits accounted for 82 percent of total costs--an assessment that

suggested workforce downsizing was the most effective way to lower costs. The process-based accounting

system revealed a different picture, however: it showed that 44 percent of the department's costs involved

expediting, resolving, and reissuing orders from suppliers and customers. In other words, almost half of

their costs were associated with reworking deficient orders.

Business processes also can be assessed in terms of value-added activities the amount of value contributed

to a product or service by a particular step in the process. For example, as part of its invoice collection

process, Corky's Pest Control, a small service business dependent on a steady stream of cash payments,

provides its customers with a sell-addressed, stamped envelope. Although this adds an additional cost to

each account, it more than pays for itself in customer loyalty arid retention, and reduced accounts

receivables arid late payments handling. Conversely, Organizations often engage in process activities that

have little or no added value. For instance, in a Denver hospital an employee on each workshift checked a

pump that circulated oxygen. Eight years earlier, the pump had failed and caused a death. Since that time, a

new pump had been installed with fault-protection equipment and control sensors that no longer required

the physical inspection. Yet because of habit, the checking process remained in place and drained resources

that could be used more productively in other areas.

b. Define performance objectives. Challenging performance goals are set in this step. The highest

possible level of performance for any particular process is identified, and dramatic goals are set for speed,

quality, cost, or other Inca- sores of performance. These standards can derive from customer requirements

or from benchmarks of the best practices of industry leaders. For example, at Andersen Windows, the

demand for unique window shapes pushed the number of different products from 28,000 to more than

86,000 in 1991. The pressure on the shop floor for a "batch of one" resulted in 20 percent of all shipments

containing at least one order discrepancy. As part of its reengineering effort, Andersen set targets for ease

of ordering, manufacturing, and delivery. Each retailer and distributor was sold an interactive,

computerized version of its catalogue that allowed customers to design their own windows. The resulting

design is then given a unique "license plate number" and the specifications are sent directly to the factory.

By 1995, new sales had tripled at some retail locations, the number of products had increased to 188,000,

and fewer than one in two hundred shipments had a discrepancy.

c. Design new processes. The last task in this third step of reengineering is to redesign current business

processes to achieve breakthrough goals. It often starts with a clean sheet of paper and addresses the

question "If we were starting this company today, what processes would we need to create a sustainable

competitive advantage?" These essential processes are then designed according to the following guidelines:

· Begin and end the process with the needs and wants of the customer.

· Simplify the current process by combining and eliminating steps.

· Use the "best of what is" in the current process.

· Attend to both technical and social aspects of the process.

· Do not be constrained by past practice.

· Identify the critical information required at each step in the process.

· Perform activities in their most natural order.

· Assume the work gets done right the first time.

· Listen to people who do the work.

An important activity that appears in many successful reengineering efforts is implementing "early wins" or

"quick hits." Analysis of existing processes often reveals obvious redundancies and inefficiencies for which

appropriate changes may be authorized immediately. These early successes can help generate and sustain

momentum in the reengineering effort.

4. Restructure the organization around the new business processes. This last step in

reengineering involves changing the organization's structure to support the new business

processes. This endeavor typically results in the kinds of process-based structures that were

described earlier in this chapter. An important element of this restructuring is implementing new

information and measurement systems that reinforce a shift from measuring behaviors, such as

absenteeism and grievances, to assessing outcomes, such as productivity, customer satisfaction, and

cost savings. Moreover, information technology IS one of the key drivers of reengineering because

it can drastically reduce the cost and time associated with integrating and coordinating business

processes.

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