Comment: Reengineering: Lip Service But Too Little Action

A great gap yawns between the aims of reengineering programs and the actions that banks have undertaken to achieve them.

This gap increasingly will place banks at a disadvantage when competing against other financial services providers that have reengineered more successfully.

These are the inescapable conclusions of "Learning From the Reengineering Experience: Next Steps For Corporate Success," a national survey of banking executives with broad responsibility for change management at a wide range of banks.

In partnership with the American Bankers Association, Gemini Consulting asked these executives about their experience with reengineering and about their plans for large-scale change. Their answers provide a portrait of an industry with high aspirations for change but only piecemeal success in actual practice.

The goals of reengineering programs are grand:

Defining and implementing new revenue opportunities (64%).

Training people to succeed with reengineered processes (64%).

Changing the organization's culture (57%).

Adopting new growth-oriented processes (50%).

Growth-oriented processes already have achieved notable success in banking, especially compared with other industries. About 71% of banking executives reported increasing revenues as a result of reengineering, versus only 42% of executives in nonbanking enterprises.

Nevertheless, banking remains less comprehensive in its approach to change, despite having embarked on reengineering earlier than other industries.

While 72% of executives from other industries cited the radical redesign or elimination of current processes as a major component of their reengineering initiatives, only 41% of banking executives did so.

Similarly, 50% of executives from other industries said that completely new processes are a feature of their reengineering programs. For bankers the proportion was only 37%. Meanwhile, 60% of banking executives said their change initiatives aim at only incremental improvement-versus 41% in other industries.

Moreover, although 57% of bankers said that changing the culture of their organizations is a major component of their programs, only 4% cited changing the organizational structure among their top three priorities for the future.

A similar gap between ambition and action appears in the crucial area of information technology. Fully 95% of those who participated in the survey identified technology as an essential enabler of reengineering. More than two-thirds, or 69%, of executives said their organizations have well- defined processes for systems development, support, and maintenance; and 62% said they have adopted a standard set of methodologies and tools for systems development, support, and maintenance.

Nevertheless, 47% agreed that their organizations are capable of delivering and implementing information technology solutions required for reengineering.

In addition, 64% did not indicate that their information technology solutions are worked concurrently with their reengineering efforts-despite the fact that the fastest and most sustainable improvements are achieved when reengineering and information technology are combined.

The survey also uncovered a gap between the percentage of banks that said they are reengineering for customer focus (86%) and the smaller share (61%) of those same banks that have sought the advice of customers in redesigning processes. In addition, even fewer appear to be seeking such help from suppliers (52%).

Those findings are even more surprising given that most banking executives report that they frequently look outside of their organizations to find innovative best practices within their industry (93%), as well as from other sectors (76%).

Perhaps the clearest evidence of the gap between ideas of reengineering and their implementation lies in the perceptions of top leadership versus those of senior and mid-level management.

In assessing the value of reengineering to their organizations, the top leadership (board members, CEOs, chief operating officers, and presidents, who make up half of the survey), tended to have a more positive view than senior and mid-level managers. About 83% of top leaders said that reengineering increased profitability, but only 67% of senior and mid-level managers agreed.

In another disparity, 63% of top leaders, but only 43% of senior and mid-level managers, said that there are clear roles and responsibilities for people involved in reengineered processes. About 71% of top leaders affirmed that reengineering has also enhanced trust between workers and management, a view held by only 42% of senior and mid-level managers.

Although large numbers of both groups have reservations about their organizations' information technology capability, a large difference of opinion remains. About 54% of top leaders said their organizations are totally capable of delivering the IT solutions required by reengineering, compared with 39% of senior and mid-level managers.

Strikingly, 86% of top leaders, but only 56% of senior and mid-level managers, said their organization is capable of swiftly making and carrying out decisions about reengineering.

Wide gaps also exist between top leaders' views and those of senior and mid-level management about the value of reengineering to their banks' customers. Again, top leadership holds a more positive view.

About 72% said that customers have noted better quality, a view held by only 54% of senior and mid-level managers. By exactly the same margin, top leaders reported that customers have noted better products and services and senior and mid-level managers agreed.

Similar disparities exist between top leaders and senior and mid-level managers in the area of customers noting faster delivery (68% versus 51%) and customers noting improved service (76% versus 58%). In addition, 68% of top leaders said that customers help in process redesign, but only 50% of senior and mid-level managers agreed.

These differences in perception between the top of the organization and the managers closer to the reengineering action are not surprising. However, they are cause for concern because successful efforts were characterized by greater alignment and greater realism among all levels of the organization.

About 85% of all participants said that the issues they encountered in reengineering have been atypically bigger and more complex than anticipated. In addition, large percentages of the executives identified obstacles to large-scale change that have frustrated companies for more than a decade, including:

The piecemeal nature of previous reengineering efforts (83%).

Absence of appropriate in-house expertise to carry out plans (80%).

Lack of middle management understanding (78%).

Inadequate reward and recognition systems (69%).

Organizational immunity to change (63%).

Nevertheless, the executives credited their reengineering programs with a broad range of successes, including improved quality (82%), reduced operating expenses (77%), increased productivity (77%), and the retraining of people (73%).

Most tellingly, an overwhelming majority of banking executives affirmed that their banks remain committed to reengineering; almost 80% said they expect their banks to make again the same or greater investment in reengineering.

With this overwhelming majority of banks pursuing large-scale change, the winners will be those that achieve all of these changes in an integrated, seamless manner, thereby multiplying the power of each change many times over.

They will not only aspire to customer focus but also achieve it by redesigning processes with customers in mind and by bringing customers into the redesign process.

They will build an integrated measurement system that tracks and inspires progress across several related dimensions, not simply by cost.

They will turn information technology into a competitive weapon by developing it concurrently with strategy and innovation, rather than merely using it to enable a business process.

They will tap the real potential of their people, retraining them and winning their hearts and minds for the change effort, instead of regarding them as a cost.

The next stage in the evolution of reengineering is likely to be so profound that the term itself will evolve into something new. Indeed, reengineering is becoming an established management function like marketing or human resources.

The executives in this survey who are today redefining reengineering already have a head start in this evolutionary race.

But that slim advantage will be lost unless the next crucial step is taken: moving boldly from the idea of reengineering at its best to its implementation in reality.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER