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  • 05.04.11

Why Companies Will Change Or Fail

How can companies transform to fit the new business landscape? How can companies even realize they need to change? We continue our Leadership Hall of Fame series, a year-long look at the top business books and authors, with an excerpt from Reengineering the Corporation (1992) by Michael Hammer and James Champy.

Reengineering the Corporation

Some people blame corporate problems on factors beyond management
control–closed foreign markets, the low cost of capital,
and predatory pricing by foreign companies subsidized by their
governments. They blame the federal government’s mishandling of
the economy, its regulations, and its poor husbandry of natural and
human resources. They blame unions or poorly educated and
unmotivated workers.

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But if these reasons accounted for our dilemma, nearly all companies
would be in decline. But they aren’t. Sears may be losing its
market, but Wal-Mart is thriving. GM has trouble making worldclass
cars in the United States, but Honda doesn’t. The insurance
industry, as a whole, may be hemorrhaging money, but some companies,
such as Progressive Insurance, earn outstanding returns. In
almost every industry, under the same rules and with the same
players, the successes of a few companies rebut the excuses of the
many.

If managers can’t decide why their companies are in trouble, neither
do they agree on what to do about it. Some people think companies
would bounce back if only they had the right products and
services for the times. We reject that thinking, because products
have limited life spans, and even the best soon become obsolete. It is
not products but the processes that create products that bring companies
long-term success. Good products don’t make winners; winners
make good products.

Some people think companies could cure what ails them by
changing their corporate strategies. They should sell one division
and buy another, change their markets, get into a different business.
They should juggle assets or restructure with a leveraged buyout
(LBO). But this kind of thinking distracts companies from making
basic changes in the real work they actually do. It also bespeaks a
profound contempt for the daily operations of business. Companies
are not asset portfolios, but people working together to invent,
make, sell, and provide service. If they are not succeeding in the
businesses that they are in, it is because their people are not inventing,
making, selling, and servicing as well as they should. Playing
tycoon might be more exciting for senior managers than dirtying
their hands in the mundane details of operations, but it is not more
important. “God,” said the architect Mies van der Rohe, “is in the
details.” Van der Rohe was speaking of buildings, but his observation
applies equally well to running a business.

Some people, including many managers, blame corporate problems
on management deficiencies. If companies were only managed
differently and better, they would thrive. But none of the management
fads of the last thirty years–not management by objectives,
diversification, theory Z, zero-based budgeting, value chain analysis,
decentralization, quality circles, “excellence,” restructuring, portfolio
management, management by walking around, matrix management,
intrapreneuring, or one-minute managing–has enabled companies to
sustain their competitive performance. They have only distracted
managers from the real task at hand.

Some people think that automation is the answer to business
problems. True, computers can speed work up, and in the past forty
years businesses have spent billions of dollars to automate tasks that
people once did by hand. Automating does get some jobs done
faster. But fundamentally the same jobs are being done, and that
means no fundamental improvements in performance.
Our diagnosis of business problems is simple, but the corrective
action that it demands is not as easy to implement as the solutions
that have already been tried. Our diagnosis goes to the very heart
of what a company does. It rests on the premise that a company that
is better than others at the meat and potatoes of its business–inventing products and services, manufacturing or providing them,
selling them, filling orders, and serving customers–will beat the
competition in the marketplace. We believe that, in general, the difference
between winning companies and losers is that winning companies
know how to do their work better. If companies want to
become winners again, they will have to look to how they get their
work done. It is as simple and as formidable as that.

From the book Reengineering the Corporation by Michael Hammer and James Champy. Copyright © 2001, 2003 by Michael Hammer and James Champy. Reprinted courtesy of HarperBusiness, an imprint of HarperCollins Publishers.

Read more about Reengineering the Corporation or our Leadership Hall of Fame.

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