STRATEGY

Avoiding the Hottest New Management Cure

How growing companies can bypass traditional management structures and avoid big-company bloat.
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Large corporations are reengineering themselves to behave more like small companies. The challenge for growing companies? How to bypass traditional structures

In many ways big companies today are desperately trying to become like small companies. Their bloated structures and hardened arteries have made them unresponsive to customers, sluggish at innovation, and slipshod in production. Our prescription -- reengineering -- amounts to making big companies look a lot like integrated small companies.

But that doesn't get small companies off the hook. Unless you pay close attention to how your organization develops, chances are good that your company, too, will grow up to look like today's big companies and that you will have to endure all the painful reorganization they now are going through. The time to get serious about the principles of reengineering is the minute you can't fit everybody in your organization around a conference table. Otherwise, before long, you'll be calling us for help.

Simply put, the purpose of reengineering is to organize your company so you can best create value for your customers. Its purpose is to eliminate -- or, better, prevent -- the barriers that create a distance between your employees and the people they should be serving. The structure of your organization should be based on collections of tasks that create value. The shorthand term we use to describe such collections is processes. Processes are value-adding, value-creating collections of activities. Some examples are product development, customer acquisition, customer service, and order fulfillment.

To distinguish processes from traditional organizational units, it's useful to look at something like sales. Sales is not a process; it is a department, a function, a group of salespeople. Similarly, order entry is not a process; it is just one task, which, by itself, does not create real value. But order fulfillment is a process. Here's why:

Order fulfillment is accomplished through lots of steps, lots of tasks, lots of activities. The customer is not interested in any one of those steps or activities. The customer is not interested in your entering the order, checking the credit, allocating inventory, picking and packing the product, or putting it on the truck. None of those by itself creates value for the customer. It is the integration of those tasks -- the process -- that creates value for the customer. That means the employees who do each of those tasks have to be integrated as well. They must be working together in teams to accomplish the entire process of order fulfillment.

Typically, a company has a relatively small number of processes, no matter what its size. We know giant corporations -- with annual sales in the billions -- that have just seven processes. A $3-million company will probably have about seven processes, too. To figure out the particular processes for your own company, just work backward from the customer. In other words, focus not on what you do but on what gets done. The emphasis is on the results and the customer, not on tasks and procedures.

Most small growing companies follow the standard route for growth, and that gets them into trouble. They have processes that are well integrated when they are small, but as they grow, they break those processes into pieces. So when you're small it may take two people to fulfill an order. Those two do everything. But as you grow, you say, "We'll set up an order-receiving department. And a scheduling department. And a shipping department." And that structure soon buries the process: the integration of the tasks vanishes under the organization chart. What you have to do as you grow is to avoid that route. Make sure that your processes stay visible and that people understand them and recognize how, working together, they can create value for your customers.

The other way growing companies stumble is by letting their processes become archaic. Say a company starts out and does well. The CEO's attitude is likely to be, "If it ain't broke, don't fix it." That is a very dangerous attitude because it works only if the world remains static. Here's an example: It may be that when you started out, you had a lot of small orders. But times change. You may reach the point at which you have a small number of orders mainly from big customers, but you haven't changed the way you fulfill orders. The old order-filling system sort of works, but it's an accident waiting to happen. To avoid that, you have to continually identify and question the assumptions on which your processes are based.

You also have to create the right environment so the right people with the right processes can get their work done. Someone in the organization, probably not the founder, should be playing the role of coach, not to direct work teams but to do the non-ego-building job of supporting them so employees can work together as effectively as possible. The entrepreneur, meanwhile, has a different role to play, that of the leader. The leader is the inspirer, the motivator, the one who gets people excited about making things happen. Leadership boils down to three simple things: one is vision; one is communicating that vision; and one is leg breaking (if people don't want to buy into your vision, get them out of the way).

Finally, here's a test you can give yourself to know when your nicely integrated small company is moving in the wrong direction, when your employees are no longer going to be in the best position to serve your customers. The sign is this: the management of the company loses touch with the substance of the company, loses touch with customers and products, and starts focusing on administration. When you start focusing less on product and output and more on the mechanics, you're headed for trouble.

* * *

Michael Hammer is president of Hammer and Co., a management-education company based in Cambridge, Mass. James Champy is president of the CSC Consulting Group, a management consulting firm also based in Cambridge. They wrote the 1993 best-seller, Reengineering the Corporation: A Manifesto for Business Revolution (HarperBusiness, 1993).

Last updated: Apr 1, 1994




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