CM: How do you respond to those who suggest that reengineering was a mere fad?
Hammer: Many of the same issues and ideas that first surfaced in reengineering a decade ago are still there and are even more relevant now. Not everybody uses the term "reengineering." The term that has achieved a certain degree of prominence is the more general term "process," by which I specifically mean end-to-end work. Reengineering is part of this process idea. We are getting a lot of calls from organizations that recognize that they have to not only redesign their processes, but also manage their processes and organize around their processes. The process approach to running a business has a lot of power to it now.
CM: How are companies articulating this need?
Hammer: If I were to pick a single word that's emitting buzz right now, it would be "collaboration." It may take a little time to ramp up, but by collaboration I mean specifically the way companies do business with each other. It includes everything from supply chain integration, to new distribution approaches, to outsourcing. It's rethinking what you do and what you have others do for you, it's sort of the next frontier. The process and the collaboration areas fit together very well because collaboration is fundamentally about processes that cross company boundaries. There's a lot of energy around both of those, because in many ways we're back to where we were a decade ago.
CM: Ten years ago we were in a recession.
Hammer: The economists claim we're coming out of a recession, but if you talk to CEOs, they don't see it. They don't see any real improvement in business conditions, and I don't think there will be, from their point of view. We're looking at a prolonged period, in my view, of overcapacity and extreme margin compression. I recently heard about the CEO of a large equipment manufacturer who's been complaining that his major customers are calling him up and saying, "All my inventory of your product that I have, I'm sending back. Going forward, if I buy anything from you, it's going to be at this price. If you have trouble with either of these, I'll find somebody else." In virtually ever industry I know, we have a deep problem of overcapacity. It's going to take a very long time to work out that overcapacity.
CM: In which industry is this overcapacity most apparent?
Hammer: The auto industry is my favorite example. The auto industry worldwide sells a little more than 50 million vehicles a year, yet has the capacity to produce 75. That's a real problem. It puts all the power in the customers' hands. Going forward, demand is not increasing as fast as productivity is, which is really troubling. We need less and less to make more and more than anybody's going to buy. I think we're in for a prolonged, very tough period, which means that people are really interested in operations, in back to basics.
CM: Why does this overcapacity exist?
Hammer: They have all this overcapacity because they built too many plants, because individually they all want to grow. I want to grow and you want to grow, and each of us grows by producing more. Just-in-time has allowed them to keep their inventories in check; the problem is that they have too much production capacity.
CM: Can't just-in-time strategies help them get a better fix on product demand, helping them get a better read on their production requirements?
Hammer: Yes, but there are still too many of them chasing down the same amount of demand. It's not unique to the auto industry. You have it in steel, telecommunications, movie theaters, you name it. We've got too much of everything, and that means companies are going to have to hunker down. I was just looking at a presentation that an executive from a certain company gave, and after the introduction, the punch line was, "In other words, it's a market share game." I think that's what it becomes in every industry — this idea that a rising tide will lift all boats is dead. From now on, it's going to be a game of stealing market share from the other guys. And the way to do that is not by being cute and clever, but by blocking and tackling better than they do.
CM: How do CEOs begin to sense the impact of their company's overcapacity?
Hammer: They'll have no pricing power. Customers pushing back.
CM: In five years' time, should we see a fair percentage of the walls that surround most corporations, at this time, knocked down? How fast do you see these processes moving outward?
Hammer: I'm of two points of view on this. On the one hand, it's already happening and it's accelerating. It will take a very long time for it to be fully done. We're still in the early stages of work that was begun a decade ago. This is hard work and it takes a long time. The idea that we can get this done in a year or two and move on is wrong. This will take companies quite a few years, which means consultants that do a good job at it will have some serious life-cycle opportunities.
CM: I guess it was toward the mid- to late '90s when productivity levels were shown to be rising. Is greater worker productivity in part responsible for overcapacity?
Hammer: I don't think we have any choice but to improve productivity. We have to realize, though, that there's a price to pay for it. There's no standing still, but there are consequences that may not be so pleasing to everybody. On the one hand productivity conquers inflation, but on the other it creates deflation.
CM: Was this overcapacity in part created by an economy that had become overblown with dot-com businesses and venture money?
Hammer: The overcapacity wasn't because of the dot-coms, it was independent of it. Virtually all of the dot-com stuff and the corporate response to it has been a colossal waste of money, with zero return. What's interesting is that the economy survived that. The reason it has is because productivity has been increasing so much that we can afford to waste that money. But it was a waste. Now we're not wasting that money, but we still have increased productivity.
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