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Reengineering the Corporation: A Manifesto for Business Revolution Rev Editionby Michael Hammer and James Champy
Synopses & Reviews
Chapter One The Crisis That Will Not Go Away
Not a company exists whose management doesn't say, at least for public consumption, that it wants an organization flexible enough to adjust quickly to changing market conditions, lean enough to beat any competitor's price, innovative enough to keep its products and services technologically fresh, and dedicated enough to deliver maximum quality and customer service.
So, if managements want companies that are lean, nimble, flexible, responsive, competitive, innovative, efficient, customer-focused, and profitable, why are so many businesses bloated, clumsy, rigid, sluggish, noncompetitive, uncreative, inefficient, disdainful of customer needs, and losing money? The answers lie in how these companies do their work and why they do it that way. The results companies achieve are often very different from the results that their managements desire, as these examples illustrate.
• A manufacturer we visited has, like many other companies, set a goal of filling customer orders quickly, but this goal is proving elusive. Like most companies in its industry, this company uses a multi-tiered distribution system. That is, factories send finished goods to a central distribution center (CDC). The CDC in turn ships the products to regional distribution centers (RDCs), smaller warehouses that receive and fill customer orders. One of the RDCs covers the geographical area in which the CDC is located. In fact, the two occupy the same building. Often and inevitably RDCs do not have the goods they need to fill customers' orders. This particular RDC, however, "should be able to get missing products quickly from the CDC located across the hall, but itdoesn't work out that way. That's because even on a rush/expedite order, the process takes eleven days: one day for the RDC to notify the CDC that it needs parts; five days for the CDC to check, pick, and dispatch the order; and five days for the RDC to officially receive and shelve the goods, and then pick and pack the customer's order. One reason the process takes so long is that RDCs are rated by the amount of time they take to respond to customer orders, but CDCs are not. Their performance is judged on other factors: inventory costs, inventory turns, and labor costs. Hurrying to fill an RDC's rush order will hurt the CDC's own performance rating. Consequently, the RDC does not even attempt to obtain rush goods from the CDC located across the hall. Instead, it has them air-shipped overnight from another RDC. The costs? Air freight bills alone run into millions of dollars annually; each RDC has a unit that does nothing but work with other RDCs looking for goods; and the same goods are moved and handled more times than good sense would dictate. The RDCs and the CDC are doing their jobs, but the overall system just doesn't work.
• Often the efficiency of a company's parts comes at the expense of the efficiency of its whole. A plane belonging to a major U.S. airline was grounded one afternoon for repairs at airport A, but the nearest mechanic qualified to perform the repairs worked at airport B. The manager at airport B refused to send the mechanic to airport A that afternoon, because after completing the repairs the mechanic would have had to stay overnight at a hotel and the hotel bill would come out of manager B's budget. Instead, the mechanic was dispatched to airport A earlythe following morning; this enabled him to fix the plane and return home the same day. A multimillion dollar aircraft sat idle, and the airline lost hundreds of thousands of dollars in revenue, but manager B's budget wasn't hit for a $100 hotel bill. Manager B was neither foolish nor careless. He was doing exactly what he was supposed to be doing: controlling and minimizing his expenses.
• Work that requires the cooperation and coordination of several different departments within a company is often a source of trouble. When retailers return unsold goods for credit to a consumer products manufacturer we know, thirteen separate departments are involved. Receiving accepts the goods, the warehouse returns them to stock, inventory management updates records to reflect their return, promotions determines at what price the goods were actually sold, sales accounting adjusts commissions, general accounting updates the financial records, and so on. Yet no single department or individual is in charge of handling returns. For each of the departments involved, returns are a low-priority distraction. Not surprisingly, mistakes often occur. Returned goods end up "lost" in the warehouse. The company pays sales commissions on unsold goods. Worse, retailers do not get the credit that they expect, and they become angry, which effectively undoes all of sales and marketing's efforts. Unhappy retailers are less likely to promote the manufacturer's new products. They also delay paying their bills, and often pay only what they think they owe after deducting the value of the returns. This throws the manufacturer's accounts receivable department into turmoil, since the customer's check doesn't match themanufacturer's invoice. Eventually, the manufacturer simply gives up, unable to trace what really happened. Its own estimate of the annual costs and lost revenues from returns and related problems runs to "nine figures. From time to time, management attempts to tighten up the disjointed returns process, but it no sooner gets some departments working well than new problems crop up in others. • Even when the work involved could have a major impact on the bottom line, companies often have no one in charge. As part of the government's approval process for a major new drug, for instance, a pharmaceutical company needed field study results on thirty different patients who took the medicine for one week. Obtaining this information took the company "two years.
The most successful business book of the last decade, Reengineering the Corporation is the pioneering work on the most important topic in business today: achieving dramatic performance improvements. This book leads readers through the radical redesign of a company's processes, organization, and culture to achieve a quantum leap in performance.
Michael Hammer and James Champy have updated and revised their milestone work for the New Economy they helped to create—promising to help corporations save hundreds of millions of dollars more, raise their customer satisfaction still higher, and grow ever more nimble in the years to come.
About the Author
Dr. Michael Hammer is the leading exponent of reengineering and the founder of the reengineering movement. President of Hammer and Company, a Cambridge, Massachusetts management consulting and education firm, Hammer wrote the influential 1990 Harvard Business Reviewarticle, "Reengineering Work: Don't Automate, Obliterate." He also co-authored the bestselling The Reengineering Revolutionand Reengineering the Corporation.
Hammer regularly addresses and consults with many of the world's leading companies on the topic of business reengineering. His seminars on reengineering are attended by thousands of people annually.
Hammer has been profiled in Business Week, The New York Times, The Boston Globe, and numerous business publications. He was named one of the four preeminent management thinkers of the 1990's by Business Week and one of America's twenty five most influencial individuals by Time. He was formerly a professor at the Massachusetts Institute of Technology where he received his bachelor's, master's and doctoral degrees.
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