Approached in the right spirit and under the right circumstances, core process redesign is a powerful tool. Yet achieving performance breakthroughs is never easy, and expectations can often outstrip results. Indeed, a badly executed redesign can actually impair performance. So what can top management do to create the optimum conditions for CPR? First, choose the right targets—both for performance and for process. Second, ensure that the need for change is widely understood and accepted—which means investing substantial and visible effort to demonstrate real commitment. And third, look out for the "red flags"—the tell-tale signs that something is going wrong. Identified and corrected quickly enough, these red flags can help an alert CEO keep a CPR effort on track.

No one is secure any more. One of the most striking legacies of the 1990s will be the degree to which so many companies—even the ones that used to evoke a sense of security and stability—will fall victim to the performance imperative. Not only is the threshold of acceptable performance rising at an unnerving pace; markets and shareholders are becoming much less forgiving of performance shortfalls. Companies that can’t close the gap are at risk. There is little sympathy left for the argument that conventional approaches to performance improvement will, sooner or later, deliver adequate results.

At the center of this turmoil are today’s CEOs. Living on the fault line where intensifying competition and calls for more transparent accountability collide, they must deliver more business performance than ever before—and in less time. Quite understandably, many of them have turned to core process redesign (CPR) as a way of leading their organizations to performance breakthroughs in exceptionally compressed periods of time.

CPR is no panacea. As with any powerful management approach, everything depends on when, where, and how well it is used

So far, their experience has been mixed. CPR is no panacea. It is not always the right medicine. Nor, once begun, does it always produce the desired results. Used well, in the proper circumstances and with the proper precautions, it can indeed lead to immense performance gains. Used poorly, however, it runs the risk of impairing already sluggish performance even further. As with any powerful management approach, everything depends on when, where, and how well it is used.

The success stories are real and impressive: cost reductions of 50 percent or more, cycle time reductions of 70 to 90 percent, and error rate reductions on a similar scale. But equally real are the disappointments, such as changes that have only a minor effect on the bottom line, like improving inventory handling in a single field warehouse. When a major industrial firm re-engineered its accounts payable process, it achieved substantial percentage improvements in cost, time, and quality. But accounts payable was not one of the small number of core processes that determined the company’s success or failure as a business. For all its localized benefits, therefore, the re-engineering had little impact on overall performance.

How, then, can CEOs tell if their CPR efforts are on target? What are the most common "red flags" that can warn them that specific re-engineering initiatives are ill advised or at risk, and unlikely to deliver the desired performance improvement? By being able to recognize these red flags, CEOs will be in a much better position to identify suitable cases for re-engineering in the first place, and to make any necessary corrections once a redesign effort is under way.

Choosing the right targets

Aiming CPR at the wrong targets is quite common, since the targets are moving and often difficult to make out. There are two kinds of target: performance and process.

Performance

Meaningful dimensions of performance are often unclear. One company that made and sold high-tech products thought that its customers valued accessibility to sales people’s expertise, and invested heavily in CPR to deliver it. The salesforce was expanded and extensively retrained to raise its technical expertise. But it turned out that customers were actually selecting their supplier almost exclusively on price grounds. Not only did the company continue to lose market share, but it also suffered severe financial losses through having invested to create a capability that did not matter to its markets.

It is hard enough to be clear about what kind of performance will be important, let alone what specific levels must be delivered

Another form of wrong target is the incorrect specification of the exact level of performance needed. For example, the high-tech company might have correctly identified price as the target performance dimension, but incorrectly determined that it had to beat the competition by 20 percent, when in fact a 5 percent difference would have generated the same customer response. Given the extent of structural change happening in many industries today, it is hard enough to be clear about what kind of performance will be important, let alone what specific levels must be delivered.

In the telecommunications business, the deployment of broadband technology in the residential market raises fundamental questions about what kind of performance customers will seek from their suppliers. As residential customers move from a basic telephone service to complex interactive broadband services such as home shopping and distance learning, their basis for evaluating suppliers will probably shift as well. Will the level of customer service become more or less important, relative to the reliability of the network, as a key buying factor? Will entirely new dimensions of performance such as gateway services become important?

Asking customers such questions today serves no real purpose, since few customers so far even have a choice of telecommunications supplier, much less any experience of the new services that will soon be available from them. Yet billions of dollars are riding on the answers. Any effort to redesign the core processes of a telecommunications business may falter unless it explicitly addresses such issues at the outset.

Understanding the drivers of customer behavior requires a clear view of how a product or service is used and what impact it might have on customers’ finances or life style

To determine what kind and what levels of performance must be delivered, management will need to become much better informed about what drives customer behavior, as well as about the impact of technology on the economics and structure of their industry now and in the future. Understanding the drivers of customer behavior requires a clear view of how a product or service is used and what impact it might have on customers’ finances or life style. Similarly, understanding the impact of technology requires the ability to assess the likely trajectories of its price and performance, and to judge how far it might alter the key cost and asset drivers of the business.

Even if the right performance target is in view, management should take care to define it broadly enough. One of the common pitfalls in process re-engineering is to focus too quickly on one performance dimension and to lose sight of others that may be equally important—or even more important—to success. For example, a retail business seeking growth recently launched a process re-engineering effort to boost its capacity to open new retail outlets. Management quickly decided that the key performance objective of CPR would be to generate a tenfold increase in revenue from newly opened outlets.

Fortunately, a preliminary diagnostic of recent performance uncovered the fact that the net present value of new retail outlets had been declining at a substantial pace for several years since the company had begun to step up the pace of new openings. This insight led management to concentrate much more explicitly on factors determining the quality of retail sites, and to shift the focus of the re-engineering to the "upstream" decisions about which sites they should acquire.

Process

Most businesses are organized along functional lines that obscure rather than reveal the processes that drive performance

Getting the performance target right is challenge enough, but getting the process target right as well is even tougher. To achieve the kinds of performance breakthrough that are re-quired, it is essential to identify all the activities that drive key elements of performance, and also to understand the determining role that information plays at various stages in the process. Unfortunately, most businesses are organized along functional lines that obscure rather than reveal the processes that drive performance.

Typically, the activities involved in any core business process are fragmented across the entire organization. The task of identifying these activities and understanding their role is often daunting. One of the pitfalls most frequently encountered in re-engineering is that key activities are not captured in the initial definition of the process, even though they eventually turn out to be critical drivers of performance. If such activities fail to be included as part of the re-engineering effort, the performance objectives of CPR may not be achievable.

To illustrate: An office products company determined that to maintain profitability in its industry, it would need to cut its cost of sales by more than 50 percent over a three-year period. Management initially approached this task as a functional sales issue, but aggressive efforts to redesign sales processes failed to yield savings of more than 10 percent. The problem was that many activities that determined cost of sales actually occurred in other parts of the organization, such as lead generation in marketing and production scheduling in manufacturing. Once management redefined the scope of its effort to include the full range of activities from lead generation to fulfillment, its performance objectives became much more achievable. The redesign ended up affecting virtually every part of the organization.

Impact

Middle managers often work to performance measures that apply only to their own departments, and by those measures they are doing fine

Even with clear targets, the prospects for real change will be limited unless the need for change is broadly understood and accepted. In a mortgage banking operation, we found that senior management was deeply concerned about the duration of the origination process. Middle managers, however, didn’t see any problem. The reason? They were working to performance measures that applied only to their own departments, and by those measures they were doing fine.

However, what was not measured was the time mortgage packages spent waiting for a department to begin work on them—and this amounted to two-thirds of the total origination time. Once end-to-end measures were put in place, compared with the competition, and shared around, middle managers readily saw that the company’s performance urgently needed to improve. After this breakthrough, the company achieved a reduction of over 90 percent in throughput time.

There are many reasons why people avoid change. Change is threatening—it means doing things differently, perhaps in ways that an individual will not be able to master. Change is difficult—it is always easier to continue doing things the same comfortable way rather than trying something new. Change is risky—if the new methods don’t work, or if people lose sight of immediate needs while trying to master them, near-term performance may suffer, perhaps disastrously. Change is often illusory—too many organizations have grown cynical as senior management announces yet another change initiative that will fall by the wayside three or four months later when some new issue diverts attention elsewhere.

With dangers like these, it is often thought prudent to pay lip service to a "flavor-of-the-month" change initiative and then to hunker down and quietly wait for it to run its course. Even when a compelling need for change is articulated, demonstrated, and accepted, achieving CPR’s desired impact on performance requires harnessing the organization’s energy and focusing it on appropriate targets. The best way to achieve this is always to bear in mind, and keep returning to, the specific performance objectives that lie behind the need for change.

Another common pitfall in process re-engineering is becoming preoccupied with exhaustive process "maps" that take years to develop and make impressive wall coverings, but serve to distract attention from the key leverage points in the process and prevent the delivery of the near-term improvements that are needed to sustain the change process. At each step along the way, top management must challenge an organization to understand how each activity in the CPR effort contributes to overall perfor-

mance objectives, and they must ask their people to search for ways to deliver the desired performance earlier and with the least investment possible.

Recognizing the red flags

But even with clear targets and a broadly shared understanding of the need for change, CPR efforts can still easily head off course. Fortunately, there are red flags that can warn an alert CEO that a redesign is going astray and looks unlikely to deliver. Most of these red flags are visible early on, so the course can be corrected if they are spotted soon enough. Red flags tend to cluster in five broad areas in a core process redesign: sponsorship, scope, performance objectives, team composition, and approach.

Sponsorship

In many cases, CPR initiatives do not have enough senior management sponsorship to ensure that the effort is appropriately scoped and supported throughout the change process.

• "Our CEO kicked off the initiative and seemed really committed to it, but he hasn’t been involved beyond that."

How a CEO and senior colleagues spend their time is a powerful signal to the rest of an organization of the priority attached to a CPR effort

Not only the CEO, but the entire senior management team must remain personally and visibly involved throughout the initiative. In a study of CPR experiences, we found that efforts lacking strong senior management leadership and participation failed to capture the desired performance improvements. It is not unusual for the CEO and several other senior managers to devote between a quarter and a half of their time to a successful redesign effort for most or all of its duration. How a CEO and senior colleagues spend their time is a powerful signal to the rest of an organization of the priority attached to a CPR effort.

• "Our MIS people are leading the redesign."

A CPR initiative normally needs to be sponsored and led by the CEO in person. If it is perceived instead as an initiative sponsored by functional management, it is unlikely to mobilize the widespread support required to achieve broad-based organizational change. The chief information officer can play an important role in mobilizing the CEO, and typically provides critical support to a CPR initiative, but is rarely in a position to sponsor such an initiative successfully.

Scope

Failure to scope the effort adequately will undermine the potential for performance improvement. Often it will increase the risk that the effort founders without delivering any performance improvement whatsoever.

• "We’ve defined 49 core processes in our business."

Most businesses can be disaggregated into three to five core processes

This is a strong danger signal that the effort has been inappropriately scoped. Typically, most businesses can be disaggregated into three to five core processes. If there appear to be many more, the processes are probably being defined too narrowly and do not focus on the key performance requirements. In breaking down their businesses into multitudes of core processes, organizations are likely to miss major opportunities for performance improvement, and the CPR effort will run a much greater risk of dissipating through loss of focus.

• "The team has an open charter to redesign the process, provided the solution doesn’t require any changes to our information technology platforms."

Perhaps the most important principle in a CPR is that no constraints should be placed on the solution in terms of the parts of the business that can be affected. The more constraints that are imposed, the more narrowly defined the solution will become, and the greater will be the likelihood that it is sub-optimized, leaving major performance improvement opportunities on the table. By acknowledging constraints at the outset, senior management is also signalling that parts of the business can be insulated from the process of change. This example will encourage others in the organization to seek similar protection, and communicate that the redesign effort may not have the priority that management has indicated.

• "We’re behind this 100 percent, but the taskforce has got to do the job in two months. We can’t afford to wait any longer."

Stretch targets are indeed appropriate, but they must be achievable

Senior management often makes the mistake of being too aggressive in the performance breakthroughs it seeks from CPR. Once the need for improvement has been identified, a sense of urgency leads management to specify objectives on an unrealistic timetable. Stretch targets are indeed appropriate, but they must be achievable. Core process redesign is not a simple undertaking. Executing major organizational change requires substantial lead times—usually nine to twelve months before the redesign is ready to be rolled out to the organization. While it is important to seek early wins, as much as one-half to two-thirds of the total performance improvement potential may take as long as two to three years to achieve.

Performance objectives

Often CPR initiatives are launched without a clear definition of aggressive yet credible performance objectives to focus the effort. It will be hard to deliver meaningful impact if the CPR team is unable to define specific performance objectives, with an appropriate balance between near- and long-term gains, at an early stage in the effort.

• "We’ve been at this for two months, but we still don’t have a clear fix on the performance objectives of the effort."

Clearly articulated performance objectives provide essential metrics. Vague or poorly defined objectives risk loss of focus

The first priority for any CPR initiative is to define clear, specific, and measurable performance objectives. Often this task is ignored or downplayed—perhaps because the objectives are "obvious," or because there is a sense of urgency about getting on with the redesign. Yet clearly articulated performance objectives provide essential metrics for evaluating both the success and the progress of the redesign initiative. Vague or poorly defined performance objectives risk loss of focus.

• "There’s really only one performance dimension that’s important to us—if we can achieve breakthroughs there, we’ll have succeeded."

Because management often launches a redesign in response to a specific problem, it is not unusual to focus on one performance dimension. However, one dimension is seldom the sole measure of success, and focusing so narrowly tends to result in suboptimal performance. For example, a CPR focused solely on reducing costs in the processing of insurance claims might prune the process so far that it ultimately fails to supply satisfactory customer service.

In fact, to take an extreme example, a CPR directed at cost alone might overlook the elimination of rework through quality, and therefore design a process that not only fails to meet quality needs, but also falls short of capturing the full cost-reduction opportunity. Good redesigns tend simultaneously to improve the cost, time, and quality of performance. However, it is important to strike a balance between addressing too many performance dimensions at once, thereby constraining the solution, and ignoring dimensions that might be relevant.

• "We have clear performance objectives, but we don’t really have a compelling rationale for them, and many people are questioning whether they are realistic."

Even when clear and specific performance objectives are in place, it is important to challenge the basis for defining them. Objectives are often chosen rather arbitrarily, simply to put a "stretch" target in place to challenge an organization. While stretch objectives are important as a catalyst for creativity, two risks arise if such objectives are defined arbitrarily. First, when performance improvement is needed in order to respond to a competitive threat, it is essential to determine whether the anticipated performance will constitute an adequate response. Second, organizations that are not ready for change are unlikely to be sufficiently motivated by performance objectives that appear to be arbitrarily chosen. Motivating people to address a performance need may involve demonstrating the validity of the objectives through such techniques as "best in class" benchmarking.

• "Our taskforce leader insists that we’ll achieve the performance breakthroughs we need, but we’ll have to wait for five years before we see much impact."

Between one-third and one-half of the total performance improvement ought to be deliverable in the first six to twelve months of implementation

Any redesign effort must strive for a balance between short- and long-term impact. A general rule of thumb is that between one-third and one-half of the total performance improvement ought to be deliverable in the first six to twelve months of implementation. This initial impact is essential both to sustain the energy the organization needs to capture the longer-term improvement opportunities, and to help fund the investment such opportunities will require over time.

Team composition

Which individuals are chosen to work on a CPR initiative will largely determine its success. The role of the taskforce leader is particularly important.

• "Our taskforce leader is a good person, but lacks clout in the organization."

The best redesign taskforce leaders are those who are clearly "rising stars," but have already attained a reasonably senior position in line management. Such people have the status to mobilize support and resources from other parts of the organization. One of the most common errors in selecting a leader is to reach far down into the organization and find someone who is truly outstanding, but who lacks the stature to overcome resistance and inertia. The status of the taskforce leader selected also signifies to others the importance attached to the CPR effort. Of course, the catch is that leading the taskforce is a full-time commitment, so the redesign initiative must have genuinely high priority to justify redeploying a manager with so much potential in this role.

• "We couldn’t spare our best people for the taskforce, but we were able to find some others who had the time for it."

The quality of people will affect the creative nature of a CPR solution; it will also determine how successfully the solution is embedded in an organization

Staffing a CPR initiative can be painful, but it is a vital early test of management commitment. It is never easy to find eight or ten of the best people in the organization and release them to dedicate half or even all of their time to a redesign initiative for a year or more. Yet the quality of the people is critical. Not only will it affect the creative nature of the solution; it will also determine how successfully the solution is embedded in an organization, since the taskforce members will become the key leaders of change. Equally important, the composition of the taskforce, as with the selection of its leader, will serve as an important indication of the depth of senior management commitment to the initiative.

Approach

It is important explicitly to treat any CPR initiative as a major organizational change. The single most common explanation for the failure of CPR initiatives is that management did not anticipate the sheer magnitude of the challenge.

• "We’re starting with a clean sheet of paper; it would only be a waste of time to understand how the process works today or where the current performance shortfalls are. Besides, it would make it more difficult for the team to come up with ’out of the box’ solutions."

Going straight into a redesign has a certain intuitive appeal, particularly to management teams who feel a sense of urgency about delivering a solution. Yet taskforces that invest time up front in understanding how a current process performs and why shortfalls occur report that this analysis proved invaluable in focusing attention on the critical leverage points during a redesign process. Such an analysis also gives the redesign taskforce early warning of the scale of the change required, and begins to highlight likely resistance points and organizational limitations that must be overcome in the redesign and change process. The key is to keep the taskforce focused on obstacles to be overcome, rather than treating limitations as permanent constraints that will restrict the solution.

• "We haven’t heard much from the taskforce since they began work, but they promise they’re going to blitz the organization once they come up with the redesign."

One of the most common oversights of CPR initiatives is an under-investment in communication, especially in the early stages. Given the pressures on the taskforce and the desire to focus on problem solving, this is natural enough. But when the redesign initiative is viewed as a change process, it early on becomes essential to create a widespread thirst for change, and to generate the energy that will sustain it. This demands an active communication program at all levels of the organization: senior management, middle management, and the front line. Without it, anxiety and skepticism may harden into resistance and even sabotage.

• "Once the redesign taskforce comes up with a vision for the new core process, it will disband and hand its recommendations over to functional management for implementation."

If change is to occur as the product of a CPR effort, the original taskforce must play a major role in driving it

If change is to occur as the product of a CPR effort, the original taskforce must play a major role in driving it. Taskforce members will have invested great effort in shaping the redesign vision, and it is they who will have the clearest understanding of the many cross-functional issues associated with realizing it within the organization. If this important responsibility is simply handed over to functional management, cross-functional elements are likely to be compromised, and much of the potential performance improvement will be lost. Many of the details of the redesign vision, after all, have to be worked out during the actual process of implementation, not before.

The integrity of the redesign can be compromised if such details are left to people who have not fully understood the driving vision. Functional management must certainly be won over to it, but this is unlikely to occur until well into the implementation stage. In the meantime, the redesign taskforce, and particularly its leader, must continue to take ownership of the change process.

The challenge is to keep tightly focused on the distinctive value that CPR can add

Waiting until a CPR implementation is well under way before discovering problems like these is unacceptably risky. It may be too late to recover, rethink, and launch a second effort. The challenge is to recognize, at every stage in the process, the red flags which warn that desired performance improvements may not be on course for delivery. Or, put more positively, the challenge is to navigate successfully around the many pitfalls, and to keep tightly focused on the distinctive value that CPR can add. These are truly "bet the business" initiatives, but for a growing range of companies there are few, if any, alternatives.