RE-ENGINEERING 2.0

When it comes to using technology to re-invent how companies do business, Michael Hammer wrote the book on the concept. His 1993 best seller "Reengineering the Corporation" (with coauthor James Champy), launched thousands of corporate reorganizations--and nearly as many "Dilbert" strips. Eleven years later companies are still hiring Hammer, an engineer and former MIT professor, to teach them to become more efficient. Why is it taking so long to learn these lessons? Partly, Hammer tells NEWSWEEK's Daniel McGinn, because it takes time for companies to learn to use today's whiz-bang technology to streamline their operations. And partly because "for many organizations, re-engineering has become a way of life." Excerpts:

Re-engineering was celebrated at first, but later it was demonized for driving layoffs. Why?

Hammer: Every new business concept has a life cycle. At first it's overhyped, and then the counterreformation sets in--you start to see criticisms of it. Being criticized is fine, but being criticized for espousing layoffs was frustrating because it was based on a misunderstanding. The work I've done never has been about downsizing. Some re-engineering does lead to reductions in force, but that's not the point. Re-engineering is about improving performance, most often by speeding things up--speed is the critical issue because customers are more demanding. But I don't have a guilty conscience. At a lot of organizations, if they hadn't re-engineered, they simply would have gone out of business and then everybody loses their job.

How is technology driving the way businesses reinvent themselves today?

The technologies that are really most important to business are not usually in the public consciousness. The most important technology of the last few years isn't cell phones or personal digital assistants--it's software called "enterprise resource planning systems" that lets different parts of a company share information. A lot of companies were buying these systems in the early 1990s and weren't getting much return. Then people started to figure out it's not really the technology that's important, but how it allows companies to change processes. Consider General Mills, which makes Cheerios. It bought software that let its factories see the inventory in its warehouses and the orders coming from customers. It took a while be-fore they realized how to use that information to cut inventory, reduce warehouse space and redesign the way they distribute products. That's the way it is with a lot of things: technology can be a frivolous waste, an added cost with a little benefit or a powerful enabler of new processes.

Where are businesses focusing their re-engineering efforts now?

Ten years ago people were focused on re-engineering transactional areas, like order fulfillment. not long there's been a big move away from the back office to overhaul processes like sales or product development. There's a big trucking company called Schneider National--you've probably seen the orange trucks. It used to take Schneider two weeks to bid on a job. By rethinking their process, now they come back in two days. By bidding before their competition does, they get to shape what the customer thinks; their win rate has gone up 70 percent. IBM has reinvented the way its scientists and engineers work, a process they call "integrated product development." They're not just faster, they're spending less money on it and customer satisfaction is up. We're also seeing more interest from companies that had no interest 10 years ago. High-tech companies, for instance. Back then their markets were growing faster than they could, so why should they worry about this stuff? Now as their industries have matured, they realize that execution matters.

What's the next big technology that will drive companies to change? GPS? Radio-frequency ID tags?

Those are interesting examples. But we don't really know how to use them very well yet. When Marconi invented the radio, he called it a "wireless" because he thought it would replace the telegraph. It took David Sarnoff, who came many years later, to realize it wasn't a wireless telegraph but a broadcasting technology. That happens with any new technology--you start out using it as a substitute for old technology, then you realize this allows you to do new things.