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  • The Economist

Re-engineering in Real Time

Information technology will transform the company as we know it.

It was only early last year that General Electric started to talk about its plan to digitise its entire business, but arguably the whole thing started much earlier, in the mid-1990s. That was when GE launched its “Six Sigma” initiative, the management method on which its redoubtable quest for perfection is based. It is no accident that this effort was first led by Gary Reiner, the company’s chief information officer.

Six Sigma, in essence, is a way of creating a closed-loop system to make continuous improvements in business processes. First, you pick a goal, often customer-related, for instance the time you take to deliver a product, and measure how well you are doing against that goal—not on average, but in terms of variation. Then you try to change the business process in order to reduce that variation as much as possible. If you hit your goal 99.9997% of the time, you have achieved “six sigma”, a statistical term describing the degree of variation. In Six-Sigma parlance, it means your “defects per million opportunities” are down to 3.4.

GE has trained tens of thousands of its managers in Six Sigma techniques, which now makes it much easier for the company to introduce real-time technology. It allows results to be measured easily, and business processes to be adjusted quickly to improve these results. In fact, most of the start-ups mentioned in this article say that their products are designed for exactly this kind of closed-loop decision-making.

Not many firms will be as prepared as GE to go real-time. Many will have to adapt their culture and the way they do business. And, for better or worse, things are likely to get more quantitative, centralised and ever-changing. Until recently, the corporate spreadsheet—the IT guts of a firm—was shaped mostly by the organisation for which it was designed. Now it is the spreadsheet which in many ways will shape the organisation.

Once Again, with More Feeling

Not that re-engineering combined with IT is a new concept. In the 1990s, many firms went through a wrenching re-engineering experience, often in parallel with the equally difficult introduction of an enterprise resource planning (ERP) system. But these were one-off efforts usually limited to one company. Real-time technology should make it possible to re-engineer business processes on a continuous basis, and across the boundaries of many firms.

Both authors of the infamous 1993 bestseller “Re-engineering the Corporation”, Michael Hammer and James Champy, have recently written new books. In “The Agenda” (Crown Business, 2001), Mr Hammer emphasises the need to “institutionalise a capacity for change”. Mr Champy, now chairman of consulting at Perot Systems, in “X-Engineering the Corporation” (Warner Books, forthcoming) invokes the increasingly pressing need for “cross-organisational process change”.

At this point, it is anybody’s guess what a typical real-time enterprise will look like. Ray Lane, a partner with Kleiner Perkins Caufield & Byers, predicts that in the long run real-time technology will do away with all the features of a firm that were needed to assure information flow in an offline world: hierarchies, departmental boundaries, paper-shuffling employees. To the former number two at Oracle, this is a tempting prospect because it would empower top executives: they would no longer be isolated from their business by layers of bureaucracy.

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