Despite all the books and consulting projects that have invoked and explained reengineering, many bankers are still trying to figure out what it means.

Nearly all of the largest U.S. banks and many below the top tier have attached that buzzword to internal projects. Its popularity spread after 1993 when "Reengineering the Corporation" by Michael Hammer and James Champy became a best-seller.

The textbook calls for the radical redesign of entrenched business practices with a close eye to strategic objectives. And some companies have indeed engaged in meaningful efforts to change the ways they operate.

But considerable disenchantment has followed from projects in which reengineering degenerated into less discriminate, across-the-board downsizing and cost cutting.

Banking experts are divided on whether the industry is evolving operationally or just paying lip service to change.

"Reengineering has not revolutionized banks the way they thought it would," said David Medeiros, a technology consultant with Wellesley, Mass.- based Tower Group.

The scope of reengineering projects varies - from companywide redesigns to more modest attempts to improving workflows in specific lines of business. But at bottom, the efforts should fundamentally change the way business is conducted, experts said.

Though reengineering sometimes can reduce operating costs, this is often just the first result of a project. Bankers who equate cost reductions with reengineering success run the risk of losing or depleting the resources they need to compete.

For this reason, the success of a reengineering hinges as much on improving processes over the long run as it does on cost reduction.

"Sometimes cost cutting leaves a bank anorexic - particularly when it hasn't been thoughtful about capabilities needed to generate new revenue," said Rodgers L. Harper, managing vice president at First Manhattan Consulting Group.

Paul Allen, chairman of Aston Limited Partners in New York, added that cost-cutting programs can achieve a short-term impact at the expense of the long-term sustainability of revenue.

But David E. Sparks, vice chairman and chief financial officer at Meridian Bancorp, pointed out that cost cutting can be successful as long as it's done in tandem with an actual redesign of business processes.

In early 1995, the $17 billion-asset Meridian initiated a broad-based reassessment of how its businesses were performed. Although a cost- reduction target was set, the bank remained "open-minded" about ways to cut expenses, said Mr. Sparks.

"As a corporation, we supported our goals in various ways, such as reengineering the corporate lending process and reviewing branches and retail delivery," he said. "We were very cognizant of the potential impact on revenue and customers."

As a result, the bank's revenue projections have been on target and customer goals have been met, said Mr. Sparks.

The changes made within the bank will likely be affected by Meridian's soon-to-be-completed merger with CoreStates Financial Corp., which has itself gone through a successful redesign, according to CoreStates officials.

Focusing on both customer service improvements and revenue enhancement, the Philadelphia-based superregional initiated its Best program in 1994.

Although significant savings were expected, CoreStates' principal goals were to create a more customer-focused organization, instill a culture of continual improvement, and improve productivity, said bank officials.

"A reengineering that focuses strictly on cost cutting is not a reengineering," said Charles Coltman, chief operating officer at the $29 billion-asset company. "Cost cutting without the rationale on why you're cutting makes for an ineffective program.,"

Observers also pointed out that technology is a key enabler of reengineering efforts.

Yet, according to Tower Group, banks are not investing in the kind of technology development required for fundamental redesign of business processes.

The firm reports that while banking companies spend more on information technology than any other major industry - about $17 billion a year - only 23% goes to development, with the bulk of investment devoted to routine maintenance and upgrades of existing systems.

"A lot of attention and information technology spending is devoted to consolidation of data centers, and bringing banks onto a common platform after mergers and acquisitions," said Mr. Medeiros. "So there's not a lot of money left to spend on technology for reengineering internal business processes."

Mr. Allen said that instead of managing the transition from mainframes to new, value-added branch platforms and distribution channels, banks are spending ad hoc on conversions or "Band-Aiding" of applications.

"Often what's called reengineering is just fixing applications, or converting to new forms of automation," he said.

Mr. Harper of First Manhattan Consulting said forward-thinking banks will use technology to take reengineering in a new direction.

"The notion of reengineering distribution systems to increase customer profitability is a top priority at banks," he said. "These institutions are at the forefront of true reengineering, which includes changing the distribution system to meet customer needs affordably."

A notable example of this is First Chicago NBD Corp., he said, which "examined cost on a segment-by-segment basis, and changed pricing to influence customer behavior to use more effective cost distribution channels for segments where it made sense to do so."

Making new products to meet customer needs and profitability targets will be the next step for banks, said Mr. Harper.

Observers noted that reengineering efforts sometimes fail because of a lack of commitment from a bank's senior staff, and because of poor communication on why changes are being initiated.

"Top management must be absolutely committed to getting results," said Mr. Harper. "Also, senior managers - heads of key business and functional units - must be hands-on participants and endorse change. If you diminish these elements, then you diminish results."

One bank that involved employees in its redesign efforts is Salt Lake City-based First Security Corp. The $13 billion-asset bank, two months into the implementation of its Vision program, evaluated over 7,000 ideas for change from employees.

"Ideas generated from the bottom up will help to create lasting change," said Scott Ulbrich, executive vice president and chief financial officer.

The evaluation of such cultural change and commitment to ongoing improvement, while harder to measure than financial objectives, is key to a successful reengineering project, added CoreStates' Mr. Coltman.

Despite the concept's shortcomings, observers agreed that reengineering will stay with the industry in some form, even if it is reaching the end of its life as a trend.

"Reengineering is imperative because the competition is tougher and customers are expecting more from their banks," said Mr. Coltman. "While we don't expect CoreStates to go through another corporatewide reengineering, we expect to build continuous improvement into the way we operate."

Mr. Allen said redesign "is fundamental to the industry, given the level of consolidation, competition, and technological issues."

"But the 'faddism' of reengineering needs to get thrown out," he said. "When the dust settles, true redesign will continue to play its role."

For the banking industry, "reengineering was needed to improve efficiency because of overcapacity," said Meridian's Mr. Sparks. "The challenge will be to reinvest expenses taken out of banks into new technologies, methodologies, and products."

Ms. Tucker is a freelance writer based in Hazlet, N.J.

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