After a brief giddy period of unparalleled growth and success, it is time for businesses to get serious again. The economic downturn means times are toughmoney is tight, the competition is more vigorous, and customers are more demanding than ever. And with uncertainty in the U.S. economy and in the world as a whole, companies are even more careful about how they approach future growth.
In this unsettled (and unsettling) climate, business strategists are looking for ways to promote growth, not just harvest existing wealth. They are also attempting to keep the best of the past few years: the potential of the Internet, the creativity of an entrepreneurial mindset, and the chance to nurture a culture of change. At the same time, they are looking for ways to survive in an increasingly unfriendly business environment. Decision making is more challenging than it has been in years.
Times were also tough in 1993 when Dr. Michael Hammer co-authored his now classic Reengineering the Corporation, which helped corporations cut through the clutter of a large enterprise to focus on the processes that fostered success.
Eight years later, Dr. Hammer is convinced that processes are even more critical today. Hes written a new book that offers a pragmatic plan for success titled The Agenda: What Every Business Must Do to Dominate the Decade. Among its many topics, the book explains the significance of customer focus, the need for new ways of measuring success, the changing definition of company, and the need for a new type of leader.
In this exclusive EDT Learning interview, Dr. Hammer shares his ideas on what business leaders must do if they want to thrive in the first decade of the 21st century.
EDT Learning: The subtitle of The Agenda is What Every Business Must Do to Dominate the Decade. Why is it important that a business dominate? Why cant it just succeed?
MICHAEL HAMMER: Theres an old phrase that your reach must exceed your grasp. If you strive for much less, youll achieve much less, especially when you are facing competitors who are trying to take away your market share. Were living in very difficult economic times. This was the case before September 11, and those events have just made things worse. We live in a time of overcapacity and underdemand. These could turn out to be deflationary times. If all you do is set your sites on survival, there is a good chance that you wont do even that. I think that companies have to be very ambitious, even if theyre just going to get by.
EDT Learning: Your focus in both this book and your groundbreaking Reengineering the Corporation is process management. Why should process management be of primary concern?
MH: In times like these, process is critical. We have to get very serious about business again. Sometime in the late 90s, companies were able to be a little frivolous. Demand kept growing. Everyone was making money. The stock market was reaching new highs. You could afford to take your eye off the ball a little bit. A lot of companies did. That game is over for now. That means we are back to the meat and potatoes of company operationhow you do your work. Success is going to come to companies that out-execute the next guy. Thats all about process.
EDT Learning: When you go into a company as a consultant, are you surprised that there are many people who dont know how their businesses work?
MH: I used to be surprised. Im no longer surprised. Im now resigned to it in many cases. Lack of understanding of how a company operates is almost universal in companies that are struggling. People on the front line know only their job. People at the top know only summary financial reports. When you really try to outline and model how the company operates on an end-to-end basis and you show it to people, theyre shocked. They cant believe it because, in many cases, their end-to-end processes were never designed. They just sort of happened. They evolved and, unsurprisingly, they dont work very well. In times like these, your processes have to work really well because you cant afford excess cost. You cant afford sub-par quality. You cant afford inflexibility. Those are all consequences of how you operate.
EDT Learning: Should the complete knowledge of the end-to-end process be the primary responsibility of top management or should that information be spread company wide?
MH: Company wide. If its only located at the top you are going to fail. Businesses that have company-wide knowledge benefit in this way: If Im doing the work and I understand the end-to-end process, thats going to shape how I behave, how I think. And its going to make me more open to change and concerned with customers. If Im in the dark, knowing nothing beyond my four walls, its going to be very hard to get me to go beyond my basic routine.
The day in which workers were supposed to be programmed robots to do specified tasks is over. Workers have to be businesspeople that understand the larger context. Otherwise you will never be able to keep up with whats next.
When people ask me what I do for a living, I sometimes say, What Im doing is reversing the Industrial Revolution. This idea of isolated departments and compartmentalized knowledge is an artifact of the division of labor of 200 years ago. It was a really good idea 200 years ago, but it has started to outlive its usefulness. The idea that this is my job, or this is my department, or this is my area of managerial responsibility solves certain problems and creates a hell of a lot of new ones. It turns an integrated company into a bunch of pieces that only roughly fit together. The companies that will dominate will have to have less sharp edges internally. An individual has to recognize that their job is going to be broader. Their area of managerial responsibility is going to be less sharply defined. We are going to have to get used to that kind of ambiguity and fuzzy boundaries as opposed to the artificial clarity of a precise organizational chart.
EDT Learning: You seem to be saying that change and change management is going to take on added importance in the years to come.
MH: Once upon a time, change came every 300 years. Then it started coming every 30 years. Now it seems to be coming every three years or even less. Things that you cannot anticipate are suddenly becoming reality. Just look at the headlines and the events of September 11. No one would have imagined we would be where we are now. Thats an extreme example, but its happening in many other areas. The rate of external change is going to be driving extraordinary needs for rapid internal change. The traditional organization with its fragmented structure takes forever to recognize that the outside world is changing, and then it takes two forevers to get its act together to do anything about it. We need a new kind of flexible structure that can adapt more quickly to circumstances.
EDT Learning: Why are customers more important than ever?
MH: Customers are looking for solutions, not products. Customers have the upper hand. They know they have more choices than ever before, and theyre using that knowledge. Customers are under more pressure themselves. Their lives are tougher, so they expect more value at lower cost from people who sell them things. And, importantly, they expect companies to be easy to do business with. If a company is cumbersome for a customer, then a customer incurs more cost. A customer wont stand for that. A customer also demands more value from a supplier. They dont just want a product. They want a problem solved. Customers are saying to businesses, Help me solve my problem. If your product is a part of that, fine. Thats a shift for a lot of companies that are still more in love with their products than their customers.
This idea of adding more value is one of the big themes that G.E. has been up to for several years. They call it moving to services. G.E. realized that a piece of equipment is just a commoditysomething that can conceivably be gotten by the customer somewhere else for a cheaper price. However, if you wrap that equipment in service that solves a customers problems, then you can distinguish yourself from everybody else. So whether its locomotives, medical systems, or aircraft engines, G.E. wraps the product in a service that helps solve the customers underlying problem.
EDT Learning: Youve been quoted as saying that the emphasis many businesses put on traditional measures of success, such as financial statements, are wrong. What types of measurement should be most important to a company that wants to succeed?
MH: Financial measures are fine for what they were intended for: tax regulatory purposes. But theyre pretty damn useless for actually running a company. They tell you whats happened, but not why. And they tell it to you too late to do anything about it. Other than that, theyre pretty good.
You have to translate certain strategic goals into current controllable phenomena. Its not enough to know that youre profitable. You have to understand the drivers of profitability. For instance, you understand that in order to increase sales you have to retain your existing customers. In order to retain your existing customers, you have to deliver on time what theyve ordered. Then an important measurement becomes on-time delivery. You can measure it as it happens and intervene quickly if something is going wrong. There are no universal measures. What there are are company-specific measures that are driven by an understanding of business process and of what you control that really shapes the outcome. Otherwise, youre just playing craps and you might as well go to Las Vegas.
EDT Learning: Another idea you put forth in The Agenda is that the very definition of what a company is will change. What will the word company come to mean in the near future?
MH: The redefinition of the elements that make up an individual business concern, a company, is already happening. Whats been going on for some years is a phenomenon called outsourcing. Traditionally what companies did was outsource fairly minor, annoying backroom functions like running the cafeteria or running some computer centers. But its not written in stone that its limited to that. What were starting to recognize is that a successful business cannot afford to be sub par at anything. If a company tries to do everything, they will, just as a matter of course, be pretty bad at some things. So smart corporations will have to concentrate on certain core competencies and work with others in the areas they dont handle well. For instance, a company might not do its own distribution. It may team up with people in the marketplace (maybe even competitors) to create a shared entity to do distribution for both concerns. Perhaps they will create a shared entity to do purchasing. The idea of a completely self-contained company is a quaint 20th century idea.
EDT Learning: Are there companies doing that now?
MH: Absolutely. Take a look at General Mills. General Mills is a very well-managed company. Over the last decade they have very carefully and thoughtfully taken a lot of internal cost out of how they manufacture and how they fill orders. They continue to evolve by engaging in many cooperative engagements with other companies to share costs and improve service. Theyre partnering with Land OLakes butter and sending out refrigerated trucks that contain both their yogurt and Land OLakes butter products. On one hand, its a very bizarre idea. On the other, it is enormously sensible.
EDT Learning: The White Knight of business, the man or woman who comes along and saves the company, is a story that is glorified in the press and mentioned with revered tones when recounted in boardrooms. You dont think thats a good idea, do you?
MH: Thomas Carlisle was a 19th century Victorian critic who had a theory of history called The Great Man Theory. Unfortunately, too many companies have a Great Man or Great Woman Theory of Businessif you have a great individual, a super CEO, a terrific salesperson, a dynamite product developer, or a kick-ass production supervisor, then youll get things done. The trouble is that that is not sustainable. I say to people who want heroes, Where are you going to find them? What school gives a Master of Business Heroism degree? Heroes burn out. Heroes leave. They are not sustainable. What is sustainable is process, which is ingrained in the organization. You do something the same way every time, not just when you want to accomplish something of heroic proportions. People can come and go, but process stays. I get very nervous when a CEO tells me that someone in his organization is a hero. What that tells me is that his processes are lousy. Without lousy processes theres no space for heroes.
Dr. Michael Hammer is one of our countrys foremost business thinkers. His latest book, The Agenda: What Every Business Must Do to Dominate the Decade, is a continuation of the groundbreaking work he has done as the originator of both reengineering and the process enterprise. Through his consultancy, Hammer & Company (www.hammerandco.com), he serves as an advisor to leaders of some of the worlds most progressive companies. His public seminars are attended by thousands of people annually.