BUSINESSWEEK ONLINE : MARCH 22, 1999 ISSUE
BUSINESS WEEK E.BIZ

From Reengineering to E-Engineering
Companies large and small are racing to revamp operations for the Internet Age

Men and women who have spiced up their sex lives with Viagra can thank the Web for its quick arrival on the market. Here's why: Pfizer Inc. (PFE) now dashes off electronic versions of its drug applications to Washington for Food & Drug Administration approval. In the old days, it had to truck tons of paper to regulators and thumb through copies of all those pages manually whenever the feds had a question. By managing documents on the Web, Pfizer sliced the old one-year approval timetable nearly in half and sped Viagra into the world's boudoirs.

Post-Viagra, Pfizer's drugs will move through the pipeline even faster. The company's wired researchers now use the Web to mine libraries of technical data and collaborate on new drug development. ''We've reengineered our business--digitally,'' says Vice-President for Research James Milson.

Reengineering. It was all the rage in the mid-'90s. But the vast and speedy Internet is ushering in an even bigger wave of business transformation. Call it E-engineering. Companies realize it's not enough to put up simple Web sites for customers, employees, and partners. To take full advantage of the Net, they've got to reinvent the way they do business--changing how they distribute goods, collaborate inside the company, and deal with suppliers.

This isn't just about saving time and money. The Web gets creative juices flowing, too. Employees who formerly spent their days faxing and phoning basic information to customers and suppliers are freed by the Net's magic to do more valuable work.

NEW BELIEVERS. Technology companies like Intel (INTC), Dell (DELL), and Cisco Systems (CSCO) were among the first to seize on the Net to overhaul their operations. At Intel Corp., for example, Web-based automation has liberated 200 salesclerks from tediously entering orders. Now, they concentrate instead on analyzing sales trends and pampering customers. Cisco Systems Inc., for its part, handles 75% of sales online. And 45% of its online orders for networking gear never touch employees' hands. They go directly from customers to the company's software system and on to manufacturing partners. That helped Cisco hike productivity by 20% over the past two years. But what grabs attention is sales: The troika is doing a booming $70 million in online business each day.

With numbers like that, it's no wonder the tech jocks are being joined by a second wave of believers, ranging from Rust Belt manufacturing giants like Ford Motor Co. (F) to foreign companies like Mexican cement seller Cemex. Even Corporate America's walking wounded are joining in. Just last month, troubled silicone supplier Dow Corning Corp. (GLW) appointed an E-commerce czar. ''Every businessperson I call on today is filled with greed or fear when it comes to the Internet,'' says James L. Barksdale, CEO of Netscape Communications Corp. ''They're asking, 'How do I do it to them before they do it to me?'''

Doing it is no simple matter. Reengineering projects can be hugely complicated, with technology, business, and organizational upheavals all rocking the corporate foundations at once. There are harrowing risks. Casualties will include some companies that were too bold--but even more that were too timid.

Ford plans to be neither. It's taking on the E-engineering challenge holistically. One executive, Bernard Mathaisel, is both chief information officer and leader of its reengineering efforts. His plan is to fundamentally retool the way Ford operates with the help of the Web, cementing lifelong relationships with customers and slashing costs. ''We're bringing new practices into every aspect of the company,'' says Mathaisel.

Already, E-business has begun to spread through the organization from front to back. Rather than relying on dealers to handle all customer contacts, Ford has put up a Web site that lets tire-kickers pick and price cars--then refers them to dealers. Ford then routes the customer feedback from the Web site to its marketers and designers to help them plan new products.

In the design process, the Web brings 4,500 Ford engineers from labs in the U.S., Germany, and England together in cyberspace to collaborate on projects. The idea is to break down the barriers between regional operations so basic auto components are designed once and used everywhere. When design plans conflict, the software automatically sends out E-mail alerts. Next, Ford's going to roll out a system for ordering parts from suppliers. When all of these pieces are in place, the company hopes to transform the way it produces cars--building them to order rather than to forecasts.

Other companies need to get wired to defend themselves. In the PC industry, the threat comes from Dell Computer Corp., which has deftly translated its hugely successful direct sales model to the Internet. Other PC companies have to match Dell's efficiencies--or die. Enter Ingram Micro Inc. (IM), the PC industry's largest distributor, which has teamed up with Solectron Corp., a giant contract manufacturer of high-tech gear.

TEAM EFFORT. In April, they plan to launch a brand-new way to build custom-made PCs inexpensively for companies like Hewlett-Packard Co. (HWP)and Compaq Computer Corp. (CPQ). Instead of the PC companies handling orders and manufacturing, Ingram and Solectron will do it for them using a Web-based system that will hasten communications and slash assembly times. The PC companies are still in the driver's seat. They continue to build the value of their brands, designing and marketing their products and handling quality assurance. But now it's a team effort. ''Customers are doing business with a virtual company,'' says Ingram President Jeffrey R. Rodek.

Figuring out what you do best is a crucial piece of Web reengineering. Few companies have pursued that philosophy as aggressively as Provident American Corp. in Norristown, Pa. In December, it took a radical step. It sold off nearly all of its life-insurance business and reinvented itself as HealthAxis.com, an online service that sells insurance products from other companies. CEO Michael Ashker decided the company was best at selling simple, high-volume insurance policies to consumers and taking a commission--rather than managing risk and independent agents.

There are some real shockers in this process. Like: Not all your customers are equal, or worthy. Weyerhaeuser Co. Inc. (WY), the forest-products company uses the Web to help it mine information from its suppliers, price products, and measure demand. More down-to-the-minute knowledge paid off: The plant boosted production by 60% to 800,000 doors last year. Weyerhaeuser can also offer more accurate bids to builders. In some cases, it can charge $40 less for certain doors--and still make a profit. That spells entre into some new markets. What's more, it now knows which customers bring in the big revenues and which don't. It can shed the ones that eat up too much time and order little.

That's painful for some customers. But E-engineering, badly executed, is even tougher on organizations. Just ask the engineers at NASA's Ames Research Center in Moffett Field, Calif. They spent $100 million building a Web-based collaborative engineering system to help accelerate development of the space station. Turned out they didn't have the technology plumbing in place to handle the job and lost some valuable data. Among the missing information: the plans for the Saturn V rocket.

Technology isn't always the hangup. In some cases, it's a stodgy corporate culture. ''For many older executives, converting to E-business is like changing their religion,'' says John Thorp, vice-president of DMR Consulting Group Inc. And sometimes resistance comes from a pencil pusher down in purchasing. At Canadian Imperial Bank of Commerce in Toronto, purchasing agents missed the point of a new Web-based system for ordering supplies. They tried squeezing suppliers for price cuts when in fact the point was for everyone to buy from an electronic catalog--to land volume discounts. The bank set them straight with tailored incentive bonuses.

Perhaps the greatest danger is that business units will act independently, and the results will be piecemeal. The last thing you want is ''tack-on'' technology. To work, this effort must be coordinated at a high level--and changes should be fundamental, says analyst Bobby Cameron of Forrester Research Inc.

CHANGE FATIGUE. Citigroup (C) gets it. As an executive vice-president in charge of advanced technologies, Edward D. Horowitz defines his job this way: to get the company's top 200 executives marching to the same drumbeat when it comes to the Internet. Horowitz's first salvo was to send them all copies of Clayton M. Christensen's best-selling book The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, about managing the dislocating effects of technology. Then he gave them a homework assignment: start banking online. At the time, only a handful were doing it. ''The message was you've got to use the product you're selling,'' says Horowitz.

That's a lot to ask of busy executives who are scrambling to complete the $80 billion merger of Citicorp and Travelers Group. But these days, change is relentless. Many corporate executives are just now finishing up major retooling of their financial and manufacturing processes. Plus, there's the Y2K problem. After a while, change fatigue sets in. ''Companies are exhausted,'' says Michael Hammer, author of the 1993 book Reengineering the Corporation: A Manifesto for Business Revolution. His advice: ''Suck it up. You have to face it again.'' In the era of E-engineering, risking burnout is better than getting fried.

BY STEVE HAMM AND MARCIA STEPANEK
Contributing: Andy Reinhardt

ONLINE LINK
An interview with Harvard Business School professor Clayton Christensen and a chapter from his book The Innovator's Dilemma are available at e.biz online.


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