Business fads come and go. "Total quality management," for example, was once widely embraced, but now skepticism greets the quality gurus.

Recently, the big buzzword has been "reengineering." Not surprisingly, the amount of attention and praise that this concept has received raises the level of skepticism among cynics

But it would be a mistake to lump reengineering with other passing trends. The demonstrated value of reengineering merits serious and immediate consideration by every financial-services provider.

Many companies will find reengineering to be a necessity for long-term profitability in an increasingly competitive environment.

Beyond Cutting Costs

Definitions of reengineering are numerous, but its essence is a focus on changing how works is done.

Reengineering does not have the same focus or goals as the classic cost-cutting exercise. The latter usually aims for cost reductions of15% to 25%. All too often, when the program is complete, costs start to creep back up.

That's because process changes have been marginal rather than revolutionary. The same complex and unnecessary tasks continue to be performed, only by fewer people working less efficiently.

Zero-Based Analysis

Reengineering requires management to take a fundamentally new look at operations. For example, thinking about how established bank departments can better fulfill customer needs must give way to thinking in terms of processes that often cut horizontally across the company. Organizational barriers have to give way to customer desires.

A number of years ago, zero-based budgeting was in vogue. It meant starting with a clean sheet of paper each year when developing a budget, rather than taking for granted the assumptions made the year earlier.

In a sense, reengineering requires a zero-based analysis of a financial institution's markets, products, and services.

Putting Ego Aside

Those working on a reengineering project need to be able to consider how things should work rather than how they work today. Brainstorming and creativity must be encouraged; egos and linear thinking have to be left at the door.

The rigors of reengineering should not be underestimated. It requires a substantial commitment of time and energy and the unwavering sponsorship of senior management.

From the beginning, it is important to understand that reengineering is not simply a disguised cost-reduction exercise. The process, of course, can and should lead to significant reductions in expenses. As it questions the work that is done internally, efficiency and productivity should rise.

Just as important, reengineering should lead to a corporate transformation, making the company more customer focused and improving service.

Beginning the Process

Reengineering should begin with the area that most managers, employees, and customers agree is not working and could use a basic "rethink."

This might involve marketing, product design, risk management, or payment processing. achieving success in one area should rally key employees to expand the effort and assist in creating the high level of staff "buy in" which is required.

Reengineering demands a team approach to problem solving with the focus on customer needs, ignoring internal politic.

The team should include a mix of insiders, who know how the current process works, and outsiders, either from another department or from outside the bank. These outsiders can provide a fresh perspective and challenge old procedures.

The reengineering process itself involves three key phases: assessment, redesign, and implementation.

Assessment involves understanding customer requirements and assessing current performance against key customer needs. This phase also includes analyzing major leverage points for the business -- that is, evaluating the drivers of revenue and costs.

Customers do not think in terms of the loan-origination department, the credit department, and operations. They think in terms of making an application, obtaining approval, and paying it back.

One of the goals of reengineering is to have internal processes reflect customer desires rather than have the customer adjust to an artificially created bank bureaucracy.

In this phase, it can be helpful to examine the successful practices of other companies. The analysis should include businesses with similar processes but in different industries.

For example, all financial service companies could learn a great deal about customer service from examining the approach of the Ritz-Carlton Hotel Co., which won a Malcolm Baldrige National Quality Award.

Design and Organization

After reaching agreement on goals, the priority becomes the actual design of an optimal process and the organization and technology-support structure required to attain it. The process should also include a detailed cost/benefit analysis.

Job definitions change during reengineering. For example, the role of the traditional corporate banker is based upon the view that the customer expects his banker to sell, approve, and underwrite a loan. In fact, the customer is more concerned about quick decision-making and excellent follow-up service.

The customer's objective is the successful completion of the process of making and servicing a loan. The organization of the bank department or the title of the officer who performs the tasks is irrelevant.

Making It Work

The final phase is implementation. A detailed plan must be developed with clear roles and responsibilities. The most effective implementation program will probably include some pilot test prior to a full scale introduction.

The emphasis on cross-bank processes, as opposed to individual department responsibilities, can result in radical changes in the way in which a bank services its customers. A pilot test will reveal problems and provide standards for fullscale implementation.

Companies that avoid reengineering will do so at their peril. Those that successfully complete reengineering programs become customer-focused and generate much improved productivity levels. Employees become charged up with a clear, outward focus, expending less energy on internal issues.

The reengineered company will be a much tougher competitor, able to generate strong returns even in the banking's slow-growth environment of the '90s.

Mr. Wendel is a vice president at Mercer Management Consulting, New York.

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