The Hindu Business Line : `Today, companies are forced to be transparent'

The Perot Systems office rises like an oasis, all air-conditioned gleaming glass and steel, in the middle of a traditional nuts and bolts industrial estate in Ambattur on the fringes of Chennai. The fleet of vans, emblazoned with the company's name, and the swarms of smart young men and women with trademark swipe cards dangling from their necks, all stand in stark contrast to the dishevelled look and potholed roads of the estate. It's here that we are to meet with bestselling author and Chairman of Perot Systems' consulting practice, James A. Champy, who's flown in for half a day from Bangalore. Recognised for his work on leadership and management issues and on organisational change and business reengineering, Champy's first book, co-authored with Michael Hammer, Reengineering the Corporation, written in the early '90s, was on The New York Times bestseller list for more than a year. Champy's new book X-Engineering the Corporation: Reinventing your business in the Digital Age, goes beyond reengineering to show managers how to get to the next frontier of business performance. Champy spoke to The New Manager on the debate the book catalysed as well as on current issues plaguing top management, on leadership and other issues. Excerpts:

Your book on cross-engineering, is it similar to the notion of the ecology of the firm, that the firm has to be ecologically balanced with all the constituents of the firm - from suppliers to customers... ?

They are all balanced, but they also have to be integrated. The work of your suppliers has to be deeply integrated into your supply chain. It isn't just about your heading a set of processes, but can you jointly design a single set of processes with your supplier... when we did the original book, Re-engineering the Corporation we went inside a firm and looked at how you can improve your manufacturing, product development, and how you can improve customer interface, service... those were the issues then.

But, now, to give you an example of a large hospital where a delivery truck goes 12 times a day because the hospital was very fragmented in the way it operated and it had various doctors writing out orders. This logistics company went to the hospital and said that it could send a supply truck once a day, `we could lower your costs, and improve our profitability but that would involve us sitting and re-designing both our processes.'

It's about doing it in a fundamentally different way. That's what cross-engineering is all about. It's not just looking at your own processes but that of your suppliers, and eventually your customers particularly if it is a b-to-b relationship. It's about collaborative re-design of processes and the reason why we can do it today — when we wrote the earlier book in the early '90s companies couldn't do it easily — but today we have the Internet. Much of the process change in companies is all Web-based.

One recurring theme of your book is how there must be greater transparency between companies and customers and suppliers. Do you see that happening?

Absolutely. There are two important principles in that book. Transparency and standardisation. Transparency, because you can't get more integrated processes if you can't be more open. And, actually disclose more to both your customers as well as your suppliers. But most companies resist that because they were designed on the basis of opaqueness, not transparency. On the assumption that somehow your processes were secret and has special value. Whereas the truth is that your processes are just the same as your competitors and there is very little to differentiate. But, companies are being forced to be transparent, particularly by sophisticated customers. They demand transparency. You cannot do business with Wal-Mart unless you are willing to show them your operating costs. And, then they want to cross-engineer your processes to drive down your costs and the costs to them. The Internet itself is making companies more transparent.

In the automobile business there's a study done which shows that 70 per cent of customers who go to buy a car know the dealer costs. There are Internet services that give dealer costs that are quite accurate. The transparency is very real and it's being forced and it's the Net which is forcing it.

I actually think that if a company gets comfortable with it, you can use transparency to your advantage. You can use it to create propositions, you can think about ways to use your openness to give customers access to your processes to create more value for them. But, that's not an easy notion to sell.

What about standardisation? Don't companies always seek out the killer differentiator?

Standardisation is another one that people in companies resist. The more intelligent people are, the more they resist it because they think that the ability to do things differently makes them distinctive and innovative. Again, I think most of what companies do is very similar and if they can standardise it, they can spend their money on truly innovative stuff. But, that's an idea that isn't still accepted although many more executives are prepared to demand standard processes. Because as companies have grown so much they have made their work far too complex by allowing every division do whatever they want to.

In the automotive industry there has been a huge influence of Japanese TQM, which is nothing but standardisation. The concern is that this tends to become bureaucracy and so standardisation ends up being procedure-orientation. And, that goes back to the same complexity...

Yes, that could happen. But, look at what Toyota is doing, they are constantly improving, and don't fall back to some bureaucratic mindset. For them it's a constant improvement of processes. Without question they are the best in the business. You can take standardisation to an extreme but I think most companies cannot afford to operate long-term with non-standard processes and you can't integrate even inside the company — leave alone customers and suppliers — if you don't standardise processes. Also, with transparency comes increased competitiveness and it means companies should have a new basis to compete, that's the value proposition. I think the next set of business books written should have to do with how do you perfect the value proposition and how do you deliver on that. It's the business proposition combined with a unique set of processes that makes yourself more competitive — very hard and even more so for existing companies. It means changing their business models in a fundamentally different way.

The notion of seeing differently before doing differently might sound like new age but that's the reality, otherwise you don't ask the most fundamental questions. Most don't realise that, do they?

The reality is in the marketplace. You go out and see in the marketplace and you've got to experience your clients. And the people who I see doing that interestingly are not traditional business analysts but behaviouralists, designers and people who deal with physical reality, architects, these are the ones who see how their products and services are being used or not being used. So they see and gain insights into what the business proposition is. It's more an art than a science and there a few firms in the US who do this. So, how do you come up with a fundamentally different proposition? The good news is you can run a business of some scale for a good amount of time just on inertia and a lot of businesses are doing just that but eventually it catches up with you and that's what's happening in the automotive industry in the US.

Which companies around the world do you see have quite successfully x-engineered themselves to seeing things differently?

One of our competitors has — IBM. It has dramatically changed the business model with which it has worked. It was predominantly a hardware manufacturer and they sold boxes. And, now it's one of the largest services companies in the world. I don't think I've seen a company do it on that scale. It's a function of leadership - Lou Gerstner's - those kind of changes are very top-down driven changes. Gerstner came out of the services industry and he understood it, but he was also a very driven and tough manager, and he drove all those changes despite the tremendous resistance. He was very persistent.

What is your hit rate in getting CEOs to accept your lessons, especially about being more open?

Not easy. Only about 25 per cent of the CEOs I consult with are willing to listen. You see, they have to see that they are part of the causation of the problems. Making them see that is the most difficult thing of all! Luckily, I am older now and can afford to pick and choose the clients I work with (chuckles).

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