Who Has the Next Big Idea?

10/27/09 9:35 AM

Article location:http://www.fastcompany.com/magazine/50/hammer.html
December 19, 2007
Tags: Innovation, Leadership, strategic planning

Who Has the Next Big Idea?

By Daniel H. Pink

In the beginning (of the new economy) , there was reengineering. And it was good. Then it
was big. Then it got scary.

The tale goes like this: In the early 1990s, many American businesses had lost their way and
began seeking salvation. Prophets appeared with the answers. Beware incremental
improvements, they warned. Redemption -- and higher share prices -- depended on
fundamentally rethinking and radically redesigning the core processes of every business.

The sacred text of these seers was Reengineering the Corporation: A Manifesto for Business
Revolution (HarperBusiness, 1993). Written by Michael Hammer and James Champy, who
were then-unknown consultants in Cambridge, Massachusetts, Reengineering the Corporation
became a surprise international best-seller. And reengineering corporations quickly became a
$50 billion industry. The craze turned Hammer, a former MIT computer-science professor,
into a rock star of the then-fledgling new economy. His bearded face began appearing at
corporate conferences, inside boardrooms, and on lists of America's most influential people.
He scolded CEOs for not zeroing in on first principles. He exhorted them to repent. Some of
his warnings verged on the apocalyptic: "Reengineering," he wrote, "is the only thing that
stands between many U.S. corporations -- indeed, the U.S. economy -- and disaster."

But, as so often happens with tales of biblical proportions, inviolable axioms mixed with
doomsday warnings and produced zealousness -- which, in turn, produced overzealousness.
And for all the wise and necessary emphasis on such things as the basics of business
processes, the reengineering juggernaut overlooked one of life's most basic laws: the law of
unintended consequences.

During the economic downpour of the early-to-mid-1990s, many business leaders tried to
huddle every activity under the reengineering umbrella. If they streamlined their company's

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product-development process, yes, that was reengineering. But so, it seemed, was cleaning
out the company supply closet. Worst of all, reengineering quickly became a synonym for
firing thousands of workers. Fast Company called it "The Fad That Forgot People" in our
inaugural issue in 1995. If you lost your job in the 1990s -- as so many Americans did -- you
probably remember reengineering. Your boss might have wrapped your pink slip in the
word.

"Some people think reengineering means downsizing because some vulgar morons decided to
apply it to their downsizing efforts because they were too embarrassed to call it downsizing,"
says Hammer, 53. "I lay awake at night worrying about that." Hammer is a devout Orthodox
Jew and the son of a synagogue cantor. "I ask myself, What could I have done to prevent
this?"

Reengineering was never about reducing head count or throwing people out of work, he says.
It was -- it is -- simply "the radical redesign of business processes for dramatic
improvement." Then he adds, "As a brand name, it's about as attractive as 'painful rectal itch.'
"

But the brand name, "reengineering" -- as well as the Brand Called Hammer -- is back. In
October, Hammer will publish a new book, immodestly titled The Agenda: What Every
Business Must Do to Dominate the Decade (Crown Business, 2001).

Hammer's main idea: We're not done reengineering. Processes are even more critical today
than they were 10 years ago -- and more urgent now that the economy is slumping. His other
ideas are a grab bag of insights and proposals that range from mundane to profound -- some
bristling with promise, others fraught with huge possibilities for unintended consequences.

Be afraid. Or redeemed. Or both.

Under the Tent: Corporate Revival

Have you ever glimpsed original sin? Hammer has. And he's drawn it on Slide 1 - 6. Now
he's glaring at that slide, his body swelling with outrage as the image gleams on a screen at
the front of a windowless hotel ballroom crammed with 330 of his disciples.

Original sin, Hammer explains, begins with a woman. She works in sales for an auto-parts
company. Her customer, an automaker developing a new vehicle, wants some new
components. She asks the customer for specs.

Original sin continues with a man. He works in engineering. He gets the specs from the

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woman. He designs the components from scratch. When he's done several days later, he
mails the designs to a plant for tooling. But the plant is swamped. It doesn't get to the
components until work slows down. Eventually, it sends them to another plant for
manufacturing. Then the manufacturer sends the finished components back to the woman,
who brings them to the customer.

Not quite right, says the customer. We need some changes. And the woman begins the cycle
again.

By now, as he explains all of this to a crowd of mostly middle-aged middle managers from
Middle America, Hammer is seething. He points to the woman -- like all of the figures on
the slide, she is a cheesy drawing that had been culled from some clip-art package. He points
to an arrow running from her to the engineer; this represents her handing off the specs. Then
to an arrow between the engineer and a mailbox. Then to an arrow connecting the mailbox to
a tooling plant. Then to an arrow showing the tooling plant handing off the item to a
manufacturing plant.

The auto-parts company was consistent, Hammer thunders: "Consistently lousy!" It always
took 140 days -- "that's 20 weeks!" -- to get a decent sample to a customer. Its main
competitor could do the task in six weeks. Enamored of time-consuming, buck-passing,
value-draining "sequential activities," the auto-parts company was winning only 18% of its
bids.

"In my bible," Hammer booms, "it says that the love of hand-offs is the root of all evil!"

But the congregants already know there's a better way, a truer path. That's what they've come
to hear. Many of them represent huge companies you've never heard of -- one is a guy from
an industrial gas company that has no consumer products, no high-profile branding, no
corporate hallways with magazine covers featuring its executives' self-satisfied smirks. All it
has is $5.5 billion in annual sales and 17,500 employees. He, like the others in the ballroom
this morning, seems to get goose bumps every time he hears "supply-chain management."
He, like nearly everyone in the crowd, is white. He, like two-thirds of the audience, is male.
Whoever has the Dockers and golf-shirt concessions here is making a bundle.

Hammer strides from one side of the room to the other, up and down the aisles, telling his
tale of redemption. Once the auto-parts company found religion -- that is, once it hired
Hammer at a rate upwards of $70,000 per day -- it changed its act. It eliminated waste. It
reorganized activities. The woman from sales and the man from engineering began seeing the
client together to grasp more clearly the client's needs. The company began storing all of its
previous designs on the engineers' workstations -- which shrunk the design stage from three
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days to a few minutes. Instead of mailing the designs to the tooling plant, the engineers
zapped them there electronically. And if the tooling plant was busy, the company took that
task to another plant, rather than wait. By reforming each stage, the auto-parts company had
more time for refinements and revisions to suit the customer. And the payoff was dramatic.
The 140-day timeline shrunk to 18 days. Overhead costs dropped by 50%. And the company
went from winning roughly one out of five bids to capturing four out of five.

The audience is mesmerized.

Hammer follows with another tale of redemption: a company that used process reengineering
to square its invoices with its purchase orders. To drive home the point, he deploys the call-
and-response technique of a Baptist preacher.

"Process management is . . ." Hammer says, his rising intonation beckoning the audience to
respond.

"Uh-wee-uh-lye," the crowd mumbles in what sounds like a lost language of Hawaii.

"Say it loud, and say it proud!" Hammer screams. "Process management is ..."

"A way of life!" the crowd responds.

"Process management," Hammer repeats, calmly this time, "is a way of life."

Somebody says, "Amen."

Coming Soon: The Next Book of Hammer

Eight years after his megabook, Hammer is still megaphoning the need for processes.
Obsessing over processes, getting them right -- no, getting them perfect -- is the only way a
company can survive, especially now that the new economy has left early childhood and has
grown into gangly, unpredictable adolescence.

Yet for someone who preaches change, Hammer's own life seems remarkably stable. He
arrived in Cambridge as a 16-year-old MIT freshman. Essentially, he never left. When he
graduated, he stayed at MIT to earn a doctorate. Then he stuck around for 10 more years as a
professor of computer science. He launched Hammer and Company in 1982.

And though he's been a businessman for nearly 20 years, Hammer ("Dr. Hammer" to his
staff and admirers) retains a certain professorial quality. He is simultaneously owlish and

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bearish. If Reengineering the Corporation -- the clarion call to the business revolution -- was
the Declaration of Independence, then his new book, The Agenda, is the Articles of
Confederation: more pragmatic, less evangelical, a plan of action rather than a cri de coeur.
"Ten years ago, people needed waking up," Hammer says. "They don't need waking up
anymore. The tenor of conversation among companies today is quite different from what it
was a decade ago."

While much of Hammer's latest book is flecked with common-sense notions about the
customer being important and effective communication being essential, it does contain
several ideas that will surprise and provoke. Here are some of those ideas.

The real new economy is the customer economy. "Customers are no longer supplicants for
scarce goods," Hammer writes in The Agenda. "Roles have changed, and sellers have become
supplicants for scarce buyers." One example: Today, the auto industry can produce nearly 20
million more vehicles a year than the world market demands. Another example: The
worldwide overcapacity in steel is larger than the U.S. steel industry.

This flip -- from scarce goods to scarce customers -- is the essence of what will make the
next decade of business different from previous ones. The Industrial Age was a battle
between labor and capital, Hammer explains. What labor got, capital lost -- and vice versa.
"Now it's really labor and capital versus the customer, which is a whole different notion," he
says. Customers want more for less -- and they want it now. Satisfying these new-economy
power brokers depends on (you got it!) reengineering. Companies that reengineer to face the
customer, to serve the customer, and to make life easier for the customer will flourish.

Those that don't will perish.

Most conventional business measures are worthless. (And the others are dangerous.)
One Hammer idea seems sure to drive CFOs straight to the therapist's couch: "Financial
measures -- profitability, return on investment, discounted cash flow, or any of the
technically complex measures used by financial engineers -- tell you little, if anything, of
what you need to know about your business." Even something as basic as a profit-and-loss
statement? Phooey! says Hammer. "It's just an autopsy. The fundamental language of
business is about work, not about money. Now, don't get me wrong, you need certain
outcomes. You need a strong balance sheet and a good P&L. But those are just outcomes.
The fundamental language of business is about things like customer satisfaction, speed, and
error rates."

Measures that count include: How long does it take to turn around an application for
insurance? What percentage of the time does a company deliver a product on the date the
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customer asks for? How many times a year does a firm turn its inventory? Those are
operating measures, metrics that matter not to the accounting department but to the all-
powerful customer.

Business heroes -- the sort of people this magazine loves to celebrate -- are actually
signs of terrible dysfunction. When an employee goes the extra mile to solve a problem or
serve the customer, most of us tend to applaud. Hammer tends to shake his head in fierce
disappointment. Celebrating such heroes is a "poisonous attitude," he says.

What's wrong with heroism? "It's not repeatable. It's not reliable. It's not dependable!" he
thunders. "It's episodic. If you put people in a lousy process, you're asking them to fight the
process. After a while, it wears them down."

In Hammer's theology, the cardinal virtues are discipline, structure, and repeatability.
Individual heroics are just an early warning signal: The company is broken and doesn't know
it.

The rise of the Internet is less important than the invention of air-conditioning. Hammer
was an Internet skeptic before Internet skepticism was cool. "I do not buy the notion that the
Web changes everything," he says. "The Web's impact on the individual is going to be
modest. I don't think it's going to have the transformative effect on society that, say, the
automobile did."

So why is the Internet capturing so much attention? "What the Internet does is turbocharge
phenomena that were already happening. Before the Internet, if I bought a car, I would read
Consumer Reports. Now I'll go to the Web. Can I get more data? Yes. Can I get it a little
faster? Sure. But it's more an extension of existing phenomena than something new."

Nonetheless, he says, the Web is a "howitzer" for consumers: "It's very important for further
pushing the power of customers, including corporate customers." Then Hammer introduces
his most provocative and controversial new idea: "In the long run," he explains, "the
revolutionary impact of the Internet will be in dissolving boundaries between companies."

The company as we know it will soon disappear. "The Last Big Thing was demolishing
the walls within enterprises," writes Hammer. "The Next Big Thing that will dominate
business discourse for the coming decade is the destruction of walls between enterprises."

Hammer calls this "virtual integration," the descendant of vertical integration -- and the
logical next chapter in the reengineering saga. Imagine, he says, that he and I are competing
yogurt makers and that, instead of sending our yogurt to stores on separate trucks, we decide

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to share a truck. It makes sense, he says. "We're not competing on the cost of trucking. We're
competing on the flavor of the yogurt, on its freshness, and on our advertising. If you and I
share trucks, that's to the consumer's advantage. It lowers your costs; it lowers my costs. We
can keep some of that savings and pass some of it on."

Just as reengineering helped reduce overhead, inventory, and cycle times by combining
certain processes across departments of a single company, Hammer's idea is to reduce
overhead, inventory, and cycle times by combining certain processes across enterprises. First,
businesses began reengineering internally. Soon, they will begin reengineering externally.

Return to the two yogurt companies. Suppose Hammer and I combine other processes as well
-- say, financial management. After all, we're not competing on who has a better accounting
system. After a while, it might become hard to tell where my yogurt company ends and
Hammer's begins.

"This is a great-grandchild of the idea of core competence," Hammer says. "Maybe all you
are is your core competence." And that -- get ready for a major meme -- changes the very
idea of what we think of as a company. "It's a CEO and a core competence or two embodied
in a couple of processes," Hammer says. "That's a company."

Redemptive Process: The Faith Endures

Business ideas, Hammer says, follow the same trajectory as Hollywood stars. Stage one:
Who is X? Stage two: Get me X! Stage three: Get me a young X! Stage four: Who is X?
Reengineering, and perhaps Hammer himself, is teetering between stages two and three.

Hammer's last big idea has been widely accepted: "I find fewer and fewer skeptics when I
interact with companies, because some of the skeptics have left and some of the other
skeptics have been converted." Yet Hammer's last big idea also has been widely corrupted.
"That happens to almost every important business idea. It gets hyped, people get excited
about it, and people say, 'Give me 20 pounds of it,' without knowing what it is."

The same perils lie in wait for Hammer's newest batch of notions and proposals. Will some
companies devise new measurements -- and get them horribly wrong? Will stomping out
business heroism stifle individual excellence? What will be the unintended consequences of
blurring the boundary between my yogurt company and yours?

But what remains embedded in his latest ideas is process, which Hammer calls "the Clark
Kent of business ideas: seemingly mild and unassuming, but actually powerful and amazing."
Hammer believes that good processes can be liberating -- indeed, good processes might be
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the only way to unshackle the innovation and creativity in everyone.

Alas, he also believes that most processes within most companies stink -- that companies are
loose where they should be tight and tight where they should be loose: "The great majority
of companies, large and small, are organized and managed in ways that directly conflict with
the principles of this agenda." And fixing that -- forcing fundamental changes in large,
historically successful, self-preserving organizations -- won't be easy. Hammer -- a
mathematician, an engineer, a man with a left brain the size of Wisconsin -- recognizes that
further reengineering ultimately depends on qualities that emanate from the right side of the
brain: devotion, trust, empathy, and all of their touchy-feely cousins.

And that calls for a new style of leadership. "The old leader was a guy who sat on the 59th
floor and made financial decisions," Hammer says. The new leader must be a charismatic
persuader, someone to whom others can relate, a person who can set sights higher than the
next quarter's earnings report. Such leaders, he says, aren't cold and distant. They have a
sense of "empathic identification."

"In a world where so many are deprived," Hammer says, repeating a line he's used before,
"inefficiency is a sin." When you ask people to make changes -- large, frightening changes --
you need to enlist not just their minds but also their hearts. And possibly their souls. "You're
not going to get passion in your organization by talking about shareholder value. You have
to give people a sense of transcendent purpose," he says. In short, you have to make them
believe.

Discipline, structure, repeatability. Say it loud, and say it proud. Reengineering, like religion,
begins with first principles. But it endures through faith.

Daniel H. Pink (dan@freeagentnation.com [1]), a Fast Company contributing editor, is the

author of Free Agent Nation: How America's New Independent Workers Are Transforming
the Way We Live (Warner Books, 2001). Contact Michael Hammer by email
(michael_hammer@hammerandco.com [2]).

Links:
[1] mailto:dan@freeagentnation.com
[2] mailto:michael_hammer@hammerandco.com

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