IT Needs An Adjustment To Take The Throne, Says Business Guru Hammer

Armed with brilliant operations management, select companies can crush the competition by slashing costs and time to market. More CEOs are getting wise to that. But IT managers won't be able to grab the mantle of responsibility for reengineering their companies' processes unless they get more collegial, aggressive, and flexible, business author and former MIT professor Michael Hammer said in a speech at the InformationWeek Fall Conference Tuesday in Palm Springs, Calif.

"You put good, capable people into brilliant processes, you destroy the competition," he said. "In many of our organizations, our processes were never designed in the first place. They just happen." Hammer wrote "Reengineering The Corporation" (Harper Business; 2001), one of the most successful business books of the 1990s; taught computer science at the Massachusetts Institute of Technology, and has worked at IBM. His latest book is "The Agenda: What Every Business Must Do To Dominate the Decade" (Crown Business Publishers; 2001).

During his speech, Hammer pointed to examples of companies that outgrew their industries by a long shot and grabbed market share from competitors while turning huge profits. But "icons of contemporary business success" such as Dell, Southwest Airlines, Toyota Motor, and Wal-Mart Stores, don't sell "astonishingly unique products," he said. "These companies win not because of what they sell, but how they do business." Often the key to blockbuster success isn't doing better the things competitors do, but doing different things.

Southwest turns its planes around twice as fast as competitors, getting more flights out of expensive aircraft and pilots. Wal-Mart invented loading-dock processes to quash expensive inventory. Dell runs "their entire company with three days of inventory, you pay up front, and they stiff their suppliers," Hammer quipped. "Operations is where these industries are won and lost."

Too often, though, CEOs confuse inventing new processes with burdening their companies with formal procedures, according to Hammer. Smartly designed processes, though, can raise customer service and cut down the "wait time" on actions imposed by bureaucracy and gaps between departments -- not add to it. Wait time is "where good corporations go to die."

In addition, good companies are always reinventing their processes. When he worked at IBM in the 1970s, "We used to make Microsoft and Intel look like wusses," said Hammer. "We defined our fair share of the market as 99%, and we typically got it You put good, capable people into brilliant processes, you destroy the competition." But IBM had to rescue itself from potential failure in the mid-'90s by re-conceiving processes originally designed for outdated mainframe computers under former CEO Lou Gerstner. Another example: Insurance company The Progressive Corp. figured out how to grow 10 times as fast as the rest of the auto-insurance industry in the '80s by offering low-risk customers attractive prices while pricing policies for bad risks high enough that they'd go to the competition. When competitors caught on in the '90s, Progressive took its strategy of pricing policies by parsing customers into small subgroups to other areas of the insurance market.

Now it's a broader swath of CEOs who are catching on to the importance of well-designed operations. Some companies are replacing CIOs with "chief process officers" or "chief transformation officers," said Hammer. IT departments have the analytical skills and systems expertise to grab the reins. But it's not a lock that they will.

"The techniques you and your organization have aren't limited to the computer utility," said Hammer. Sure, IT staffers have to sharpen their skills and learn some new ones to have a shot at managing the process-oriented thinking in vogue among CEOs. But the biggest change they'll have to make is in style. IT staffers need to become more collegial, aggressive, and able to handle ambiguity. Says Hammer, that means banishing rhetoric like, "'If they don't know what they want, I can't write the spec.'"