Few buzzwords in banking are more slippery and overused than "reengineering."

To some bankers, reengineering is all about serving customers better. For others it's a euphemism for layoffs. Then there are the more cryptic definitions, like: a process that begins with a blank piece of paper.

Verbal gymnastics aside, most reengineering projects boil down to cutting costs and streamlining operations. And without question, those two goals have become increasingly important to the industry.

What's more, there appears to be a major shift under way in the types of banks carrying out reengineerings.

Earlier this decade, the list of banks carrying out broad restructurings was weighted toward then-ailing institutions like Midlantic Corp., Riggs National Corp., and First Bank System Inc.

But while the health of the industry has improved dramatically from the late 1980s and early 1990s, the rush toward reengineering - both massive companywide efforts to reduce expenses and more modest programs to rejigger processes within a line of business - has not slowed.

Indeed, the companies that have recently invited in consultants to help sweep out the cobwebs and shore up the barn include some of the most profitable and efficient banks in the nation.

"We've labeled this as a watershed year for the industry," said Thomas McCandless, an analyst with PaineWebber in New York. "You've got half a dozen truly well-regarded banks taking fairly proactive, aggressive actions from a position of strength - not from a position of needing to."

Not all of the banks Mr. McCandless refers to - J.P. Morgan & Co., Republic New York Corp., Keycorp, Wachovia Corp., Norwest Corp., and CoreStates Financial Corp. - call what they are doing reengineering. But the analyst noted they are all engaged in some form of restructuring, whatever the label.

The goals of banks that reengineer include reducing their cost structure, improving efficiency, staying independent, and boosting shareholder value. But two factors make it hard to gauge the long-term success of individual bank restructurings, as well as the larger impact on the industry's cost structure.

The first is semantic - the term has been bandied around so much it has become as ubiquitous as it is nebulous. Even James Champy, coauthor of the book "Reengineering the Corporation" that introduced the approach, wrote in a more recent book that "reengineering is in trouble."

But true bank reengineerings seem to fit into two categories - either a companywide program, such as Fleet Financial Group's Fleet Focus project or U.S. Bancorp's Focus 59 endeavor, or a more focused redesigning of work flow and processes in a line of business. The larger efforts tend to be given a name and be conducted in a predetermined period of time. The smaller efforts, which more closely resemble the concept as originally championed by Mr. Champy and Michael Hammer, are often said to be part of a process of continuous improvement.

The second problem with measuring reengineering success is that for healthy banks, at least, the long-term value of their efforts is as yet unmeasurable.

"It's a new phenomenon," observed Mr. McCandless. "It's too early to come to any meaningful investment conclusion because there is no track record as it relates to resultant earnings."

Mr. McCandless compared the current reengineerings to the wave of bank mergers that began in the early 1980s. The early acquirers, he said, initially got a skeptical reaction from investors.

"Eventually, a track record was established by the industry and the investors became more encouraged, and embraced this notion of takeovers," he said. "So we kind of find ourself in the same position. Banks are reacting in response to the competitive environment, just like they did in the early 1980s."

There are some early returns. For example, U.S. Bancorp has been posting improved numbers as it reaches the end of the "Focus 59" program begun in March of 1994. Noninterest expense in the first quarter this year was down $30 million dollars over year-earlier results, for an annualized reduction of $120 million. The efficiency ratio was also down from a bloated 73% to 62% during the period, moving closer to the Portland, Ore.- based bank's goal of 59% by the end of next year.

Further, the $21.4 billion asset bank was able to announce a major acquisition earlier this year - West One Bancorp, Boise, Idaho. And significantly, that announcement and U.S. Bancorp's reengineering have quieted rumors that the Oregon bank is a takeover candidate.

But managements' desire to remain independent in a consolidating industry also fuels skepticism by some industry observers for such broad reengineerings.

"I think analysts have gotten disenchanted," said Nancy A. Bush, an analyst with Brown Brothers Harriman. "You can't cost-cut your way to prosperity."

Wall Street, she said, is coming to view this brand of restructuring as a short-term remedy to a lagging stock price and a way for a bank to avoid being acquired.

Ms. Bush pointed to Fleet, which followed its cost-cutting program with the acquisition of Shawmut National Corp. "That put them back to square one in terms of doing cost cutting all over again," she said.

But proponents of restructurings point to improving market value and maintaining independence as a strength of the approach.

Banks are saying, "we're either going to get lean and be able to acquire and hunt, or we're going to stay fat and be one of the prey," according to Rodgers L. Harper, managing vice president at First Manhattan Consulting Group, the New York firm that assisted in U.S. Bancorp's restructuring. "Continued independence is often a benefit of a successful cost-reduction program," he added, because a high-performing, cost- efficient bank is more difficult to acquire.

Mr. Harper also pointed to Keycorp as a "textbook" example of a successful reengineering. Before last year's merger of equals with Keycorp, Cleveland-based Society Corp. had embarked upon a productivity-improvement effort, he recalled.

"Their stock price went up and then they were able to acquire Ameritrust," said Mr. Harper. "And then they incorporated some of the disciplines that they had applied to the newly acquired Ameritrust."

The successful consolidation and process improvements created a stronger company that was an attractive merger partner for Keycorp, he said.

Mr. Rodgers said that cost-reduction goals are critical to the success of a restructuring. Senior management must be committed to the process and enlist the best employees in various business lines to come up with ways to significantly reduce costs. Those targets can be established by benchmarking, what Mr. Harper calls a rough target to try to meet or beat the performance of the bank's best competitors.

First Manhattan, which assists in both companywide and business-line reengineerings, also recommends that banks keep an eye on quality and decreasing the time it takes to complete work. Finding ways to speed up cycle times, Mr. Harper said, often compels banks to fundamentally rethink how work is done, which often results in meeting cost-saving goals.

But Paul Allen, chairman of Aston Limited Partners, another New York consulting firm, said banks should be wary of entering into enterprise-wide reengineerings with specific expense-reduction, or efficiency ratio, goals.

"For me, redesign, reengineering, should be (geared toward) serving customers better," said Mr. Allen. "And any economic effect should be an output rather than an input."

Mr. Allen said reengineering must remain focused on examining the way banks serve their customers, and finding better ways to meet their different needs. His brand of bankwide restructuring also involves business process redesign, a la Hammer and Champy.

A third major part is organizational restructuring. "Once you've redesigned processes you end up with the opportunity . . . to create something which is flatter and where the levels of management between the customer and senior management are removed."

Mr. Allen, who has worked on reengineerings at several banks, including Star Banc Corp. and CoreStates Financial Corp., said his clients don't reach an expense-reduction goal until every idea for improving processes and operations has been evaluated.

"We are not cost reduction gurus. We do not want to be . . . ever known as cost-reduction gurus," he said.

Still, the expense reduction targets ultimately announced by CoreStates - $180 million - were higher than Wall Street expected (see story on page 4A).

Not surprisingly, not everyone agrees with Aston's approach. "I think it's important to have a (cost-reduction) goal," said First Manhattan's Mr. Harper. "People need to know what they are shooting for. It makes them more productive and focused."

Chandrika Tandon, chairwoman of a consulting firm that has led many major, high-profile reengineerings, would probably disagree as well. Most projects she has worked on - including Fleet Focus last year - have included up-front announcements of cost reduction goals.

Ms. Tandon's firm, which is now assisting in Chase Manhattan Corp.'s restructuring, declined to comment for this article.

But while these approaches to reengineering differ somewhat in style and substance, they are very much alike in scope.

That's in contrast to the smaller, more modest type of restructuring that looks at improving and streamlining a line of business or a particular process.

Robert W. Rossettie, a partner with Ernst & Young's financial services consulting practice, is wary of using the same word to describe both types of reengineering.

"What they call reengineering, I'm not 100% convinced it really is reengineering," he said. "It's downsizing, more or less."

Ernst & Young has not tackled a bankwide restructuring effort but instead helps banks examine and redesign processes in businesses like trust, custody, and loan processing.

"True process reengineering tends to identify opportunities to reassign staff to the tune of 60%, 70%, 80%," he said. "Whereas the downsizing thing, because it is not so thoughtful, and you don't put a lot of analysis into it, tends to get closer to a 20%, 25%, maybe 30% reductions."

Mr. Rossettie helps banks look for processes that are redundant, labor intensive, paper intensive, and error prone.

"Often the alternatives involve automating interfaces between systems so that you only enter once, so you eliminate all of these various reconciliation steps that are manual and repetitive in nature," he said.

"We come up with a . .. vision for this process," he continued, "that depicts how we think it can be done better, faster, cleaner, cheaper, with fewer hands, fewer people, shorter cycle times, through automation and other enablers."

Mr. Rossettie said that he has nothing against the "big bang" reengineerings. But he did point to a number of risks.

In large-scale reengineerings, he said, banks can misdeploy new technology in the hope of improving operations.

"More often than not, you will have automated stupid things and won't really have gotten the greater bang for the buck that you get at the process, or department, level.

"We take the posture that it is better done through brains than brawn."

Mr. Allen of Aston, however, said that, "The difficulty of that form of reengineering is that because of the complexity of bank processes, you can optimize in one discrete area (in a way) that is actually inconsistent with what would be better for the bank as a whole."

While Mr. Rossettie concedes the point - "You don't want to wind up with VHS in one department and Betamax in another" - he pointed to the often-wrenching personal and cultural effects of major restructurings involving large layoffs.

"There are long-term morale problems, disruptions to clients - things that were not anticipated or wanted by the bank."

Indeed, everyone sees that peril, and agrees bankwide projects must be undertaken over a defined period of time that is well-communicated throughout the organization.

"When you focus an organization on fundamental redesign there is a period of time in which that is sustainable for the organization, said Mr. Allen. "You can release an energy for change. . . . It sounds Pollyannish but it's real."

"People get incredibly weary after five or six months of one of these exercises," said Mr. Harper. "Everybody that does it well, I think, tries to keep it in a clearly defined time frame so people know there is light at the end of the tunnel."

The question of rating the success of reengineerings also, of course, involves the question of failure. Even Mr. Champy writes in his 1995 book that "on the whole, even substantial reengineering payoffs appear to have fallen well short of their potential."

And several cross-industry studies, including a major one conducted by CSC Index last year, found that most companies report their reengineering efforts did not live up to expectations. (Ironically, some consultants play up the idea of failure, in an apparent attempt to promote their own successful track record in assisting companies.)

But several of the banks that were first to undergo massive reengineerings - including some that were facing crisis, even government seizure - remain independent, profitable, and efficient institutions.

Moreover, it appears that reengineerings of all stripes will be with the banking industry for the foreseeable future. "A lot of other bank directors and CEOs are saying, 'Maybe this is something we should take more seriously,"' said PaineWebber's Mr. McCandless.

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