James Champy and Michael Hammer wrote the groundbreaking book "Reengineering the Corporation" in 1992, ushering in a new era of management change. Last year, Champy updated those earlier concepts with "X-engineering the Corporation." Champy, Chairman of Consulting for Perot Systems Corp., sat down last week in Champys Boston office to discuss X-engineering—also known as "cross" engineering—its relationship to technology, its successes and failures and its future with eWEEK News Editor Scot Petersen.
eWEEK: Explain briefly the difference between "reengineering" and "X-engineering."
Champy: Its the application of the same process ideas of reengineering but applying that process thinking across organizations. Having said that, I think the work is much more challenging. Its the same, its about process. Whats different though is that the work is more enabled by the Internet, frankly, than reengineering. When we wrote the reengineering book the Internet wasnt a presence. But today the Internet allows companies to operate as an extended enterprise. And so whats different is enabled by the Internet. The other characteristic is the degree of collaboration. Its much more collaborative and much more demanding than reengineering.
eWEEK: Is it possible to have an X-engineering process that doesnt involve the Internet?
Champy: It is possible, but its the Internet that will really enable the substantial reduction in costs across an organization. For instance, in health care, you go into an HMO today or any insurer. Youll find that 40 cents on every dollar is spent on some kind of administrative costs, often redundant. You can reduce 40 to 50 percent of that, but its not going to happen with simply paper transactions. Its the electronic transactions that will allow for substantial improvement.
eWEEK: What industries are prime candidates for X engineering?
Champy: Health care, certainly logistics. Manufacturing, particularly big contract manufacturers that are manufacturing someone elses design. Retail. If you look at the way Wal-Mart is operating right now, its the quintessential X engineered company.
X engineering takes three things: It takes first a willingness for transparency, for companies to be more open with each other than theyve ever been before. It takes a great transparency and openness. Second, it will force forms of standardization in terms of processes and technology. Thirdly, it takes a degree of collaboration—I call it harmonization—that companies typically have not done. So its transparency, standardization and harmonization thats required in order to do [X-engineering].
eWEEK: Are companies ready for X-engineering? If they havent yet reengineered, how are they going to do X?
Champy: I think companies are ready and needing it but Im not convinced that managers have the appetite today to do this kind of work. Having said that, go into Wal-Mart, theyre not only ready but they demand it. Go into Dell. Michael dell is a quintessential X engineer. He wouldnt think of operating with suppliers that arent highly integrated into his operations. Theres a great deal of variability in the marketplace. Some companies are ready and doing it. Other companies havent done the basic reengineering work that they need to do. I think right now managers dont have the appetite to do this work. Its too hard.
eWEEK: Dell said one of his biggest challenges is finding managers who can keep up with the rate of change.
Champy: I think this is a particularly difficult and challenging time. I dont want to underestimate the difficulty of the X-engineering work, or the reengineering work. I also believe that managers right now are very challenged around fundamentals like being a low-cost producer in their industry. Thats basic reengineering stuff. And a lot of managers, I think theyre just stuck. I think part of it is just the general business malaise. But also think that theyre tired. They dont have the ambition.
eWEEK: Are you talking middle managers, upper management?
Champy: I think its middle to upper. I think there are upper level managers too that are cynical about ideas, who over the last five years have been told a lot things have havent come true—about the "e" stuff—and they are cynical right now. Theyre uncertain to some degree about what to do with their business. Theyve got to become a low-cost producer, and the question of being a low-cost producer and maintaining a competitive position is becoming increasingly difficult. Thats the market data dark side of the Internet. The Internet has commoditized just about all products and services. Everything becomes transparent. Look at how you buy an automobile today. Sixty percent of the people go into a showroom knowing what the car costs. So whats the basis of competition? It had better be service. But not every bodys on that yet. Not everybody has figured out what the basis of competition is. So the problems are tough, and I think the managers really lack the ambition and the appetite.