''I still remember that day in May, 1994, vividly. Richard Andrews, my friend, and the CEO of the Delaware-based KG Bearings, who later became our partner, presented me with a book that was to change my understanding of management: Reengineering The Corporation. I read and re-read the book. Reengineering seemed to be the ideal route for improving our performance since it was structured to resolve operational issues, where our problems lay. But I could apply the management technique only in 1997. Burdened by operational inefficiencies, we were drifting away from the customer. To come closer to him, I had to eliminate unproductive work. Or, reengineer. But even one year after the process was set in motion, the impact has been marginal. Did I plunge headlong into reengineering without a proper diagnosis? Was reengineering the right technique to employ ?'' Ramesh Nadkarni, the CEO of Sigma Bearings, was confused as he began a letter outlining his company's experience with reengineering to Michael Pinto, a management consultant. Aptech's Ganesh Natarajan, Rajnish Karki & Associates' Rajnish Karki, and Amtrex's Arvind Nair diagnose Nadkarni's problems. A BT Case Study.

From: Ramesh Nadkarni, CEO, Sigma Bearings
To: Michael Pinto, Executive Director, Jonathan Consulting

Dear Mr Pinto,

I was impressed by your presentation on reengineering at the All India Management Convention in Mumbai yesterday. Ever since I learnt of the concept from the CEO of our American collaborator, Richard Andrews, three years ago, I have been bowled over by reengineering. As I mentioned to you at lunch, we tried it out at Sigma Bearings (Sigma) over a year ago, but without success. Your observations on why -- and where -- companies go astray when they try to reengineer were of particular interest to me.

Let me share with you Sigma's bitter experiences. We have been making industrial bearings at our Pune (Maharashtra) plant for over two decades. We have been boosting our turnover and profits consistently every year; today, we rank second in the domestic industry with a 14 per cent share of the market. Bearings -- which increase the fuel-efficiency of an engine by reducing friction -- are used by industries as diverse as consumer durables, railways, and aircraft although the automotive sector alone consumes a third of our output. In fact, more than 70 per cent of Sigma's annual production goes to about a dozen auto-majors in the country, with whom we have entered into long-term contracts. That has helped us acquire a fairly strong customer focus.

However, it has also forced us to undertake joint costing exercises with our major customers, who insist on reducing end-prices by about 4 per cent every year, and want to pay correspondingly less for their components. Besides, the bearings industry is dominated by the unorganised sector, consisting of traders -- who import bearings which are 20 per cent cheaper than local products -- and small firms, which enjoy a price advantage of around 25 per cent. Sigma, therefore, is under continuous pressure to manage the cost of its operations. Our experience showed that while variations in our manufacturing costs have been marginal, it is the administrative overheads -- which account for between 10 and 12 per cent of sales -- that tend to go haywire. And when the latter shot up to 18 per cent for two successive years, 1995-96 and 1996-97, we decided to take the bull by the horns.

With a little over 2,000 employees, Sigma was, obviously, bloated. As the company had grown in terms of sales, it had accumulated flab at every layer of the organisation. A lot of unproductive work was going on at various levels, adding not only little value to our products and services, but also increasing the hidden costs of our operations. We tried to de-bureaucratise our manufacturing operations by disbanding our quality control department, and making workers on the shopfloor responsible for product quality. We discussed the issue at our Management Committee Meeting, and decided to take a fresh look at our administrative systems and procedures, examining their impact on value-addition.

We designed two simple tests for employees to distinguish work that adds value from work that does not. First, we said, before you start a particular piece of work, ask yourself: am I fulfilling a customer need? If the answer is yes, go ahead and do it. But if the answer is no, don't do it. Second, step into the customer's shoes, and ask: does this procedure matter to me? If the answer is no, don't do it. A customer does not benefit from most of the documentation and paperwork that goes on in an organisation. For, it does not contribute to the value of the product.

Our logic was irrefutable: if we could flush out the wastages of time and effort built into each of Sigma's numerous transactions and processes, we would discover one more way of getting closer to the customer. So, I said, let us eliminate unproductive work -- let us reengineer. It seemed as though this management technique was tailored to resolve operational problems like ours. We put one of our senior vice-presidents, a Sigma veteran who had been with the company since its inception in 1968, in charge of the exercise. We set up a three-member team with a clear target: administrative overheads should account for no more than 8 per cent of sales in 1997-98. But we were clear that while cost-reduction was important, it would be a secondary objective. The more important thing was to put the customer on top of the change agenda.

That was in January, 1997. Over a year has passed, and we are nowhere near our targets. The team combed the entire organisation for hidden costs. We reorganised our reporting and information systems, but the volume of paperwork has remained almost constant. Most of it exists, I am told, to serve our internal customers. This is quite baffling. All our senior managers are sure that a lot of costs are buried in our bureaucratic maze, but we are unable to slash them. The impact of the reengineering exercise has been marginal -- not dramatic. Sigma's financial results for 1997-98 show that our administrative overheads have come down only marginally to 16 per cent of sales. Did we go about reengineering the wrong way? Or is reengineering a tool that has failed us? I continue to be haunted by those questio