Solution A
Ganesh Natarajan, CEO, Aptech

Sigma has elements of all the four major pitfalls that companies encounter while reengineering:

The wrong approach.

• Attempting to work around tasks rather than results.
• Allowing departments to believe that reengineering is possible within functions.
• And losing interest in reengineering because the results are not quick.

Each of them has the potential, individually, to derail the programme. It is, however, difficult to agree with Michael Pinto that securing gains from reengineering within six months is a pre-requisite for success. Changing the mindset becomes a formidable challenge to a change-initiative like reengineering, particularly in organisations like Sigma, which have a long history, and a set way of functioning.

But there is a more fundamental problem with Sigma's approach to reengineering: an inadequate understanding of the difference between reengineering and other improvement programmes. Reengineering-or, more appropriately, Business Process Reengineering (bpr)-focuses on one or two critical business processes, and by sharpening their cutting-edge, reaffirms their relevance to business results. Improvement programmes, such as kaizen, take a wider sweep of the entire organisation and aim at securing multiple improvements simultaneously. By asking employees to implement continuous improvements after applying two simple tests to their tasks, Sigma has clearly adopted the latter approach. The limitation of this approach is that it starts with the assumption that the tasks being performed by each employee are, indeed, necessary, but need to be made more efficient to maximise customer satisfaction. Getting close to the customer is no more than providing a rallying-point, and it is being left to every employee to discover individual solutions. This is contrary to the basic tenet of bpr.

Could Sigma have applied bpr differently to cost-reduction by cutting administrative overheads? Yes. The right approach would have been to put all cross-functional processes under a microscope, and then, zero in on one or two. The focusing phase would be followed by a detailed design of the process by a core group of people, who would ask fundamental questions, disregard existing functional fiefdoms, and consider the availability of enabling technologies to change-and, sometimes, obliterate-the sub-processes. Sigma needed a robust, new approach, but it never got there because it took the wrong path. If enough attention had been paid to the issue of change-management and people-redeployment during the implementation stage, Sigma would have benefited.

Getting it wrong the first time has its problems: it leads to cynicism at various levels in the organisation. The best way to neutralise this is to admit, frankly, that the previous exercise lacked clarity. A formal communication exercise should be undertaken by ceo Ramesh Nadkarni himself, where he should present a new vision, and identify fresh targets. It is the focus on mindset, and the uncommonly good use of commonly-available technologies that can lead to transformation. If the management vision is clear, and the organisation committed, reengineering can transform any corporate.

Solution B
Rajnish Karki, CEO, Rajnish Karki & Associates

Sigma's is the classic trap that many companies get into. In this case, it started with the realisation of a critical business need that was also articulated in terms of a measurable target: a 30 per cent reduction in administrative overheads. But soon, the issue got lost in a maze of management buzzwords and techniques. It was Nadkarni's mistake to interpret the reduction in administrative overheads as a case of ''adding customer value,'' and perceive it as reengineering. Significantly, although Pinto shows some sensitivity to Sigma's problems and underlines the limitations of reengineering, he is caught up by the technique, and adds to the confusion by using jargon like process-mapping. As a finale, Nadkarni-who has been bowled over by reengineering-feels compelled to access Pinto's expertise even when the latter has pointedly expressed bpr's inability to reduce administrative overheads.

Interestingly, Sigma's performance in 1997-98 is quite heartening. The company managed to reduce its administrative overheads by 2 per cent in 1997-98 compared to regular increases in previous years. It is evident that Sigma has bucked the trend: if overheads had accounted for 18 per cent of Sigma's sales in 1997-1998, its profits before tax would have been nearly Rs 9 crore lower. Nadkarni does not acknowledge it as an achievement, but Sigma has done something astoundingly right in 1997-98. The ceo's success lay in identifying the problem of soaring administrative overheads, making concerted efforts to solve it, and displaying a commitment to bring about change. By forming a task-force led by a senior manager, and asking each member to assess his work in relation to customer needs, Nadkarni was able to mobilise the entire organisation towards a pre-determined cost-reduction target.

Administrative overheads generally comprise two components: salary for support staff, and expenses on communication, business travel, printing, and stationery. Since Sigma is unlikely to have brought about manpower reduction, the salary component would have gone up by about 10-15 per cent. Therefore, the other component must have come down significantly to bring about a net reduction in administrative overheads. In order to reduce expenses on communications, travel, and stationery, a company needs to develop cost-consciousness. This is a difficult task when a company is making profits. It is in this light that Sigma's achievements appear remarkable.

Although the objective of reducing administrative overheads was correct, Nadkarni's approach, and its intended consequences, are questionable. While the company has reaped the benefits of unintended pay-offs, it should now sustain the progress it has made, and make its support-activities cost-efficient. Many expenses common to operating divisions-such as recruitment and financing costs-are placed under administrative overheads to achieve economies of scale, and provide specialised services from a central source. Since they may not be directly related to adding customer value, the company should determine the realistic level of administrative overheads. Nadkarni's target of 8 per cent of sales seems rather inappropriate, even arbitrary. The best way is to benchmark against similar companies in the country and abroad.

The task-force would have developed a database of the activities, and the cost-data, of Sigma's administrative functions. This should be analysed, either internally or externally, to streamline work-flows and develop standard costs. It may be possible to automate some activities, and rationalise the workforce. Sigma's top management should stop being enamoured of concepts like reengineering. They may be interesting, but they are rooted in the socio-economic context of the developed world, and are, often, oversold. It is safer to focus on results rather than be influenced by fads.

Solution C
Arvind Nair, CEO Amtrex Appliances

It is when a company sees the prospects of significant changes in its customer-profile, competition, and technology that it usually looks at reengineering as a tool to restructure its business. Sigma finds itself in such a situation. It is faced with a disparate group of competitors, and a variety of customers with different demands. With the automotive sector set to grow exponentially, Sigma must zero-base its operations, and build the right mix of competencies to differentiate itself.

Reengineering must always be top-driven. But here, the top management has adopted the approach of abdication rather than delegation. Reengineering also aims at radical improvement. It demands a break from routine ways of looking at issues; it seeks a fresh perspective. It does not adopt a linear approach to a problem, but examines multiple options. The objective of reengineering is to recast ways of working to build a significant competitive advantage. That, in turn, leads to enhanced customer satisfaction and improved financials. Cost-reduction and downsizing are the outcomes of a successful reengineering programme-not the goals.

How can Sigma get back on track? Of course, the company now knows what does not work; it should build on that knowledge. The starting-point for this exercise is the customer. Sigma seems to be operating in three different segments: Original Equipment Manufacturer (OEM) supplies to the automotive sector; oem supplies to other industries; and the trade sector. The competitive skills required in supply-chain management, new product-development, customer-retention, and market-penetration are varied. Sigma should now prioritise the segments it should focus on; it should simultaneously decide which segments to leave out. The latter is, often, the most difficult decision to take since it depreciates the value of some people in the organisation.

Let us suppose that Sigma picks automobiles as a growth-area. There are several factors it could build on to become a preferred oe-supplier: cost-reduction, quality-improvement, product-innovation, and reliable deliveries. Once the competency areas are defined, the reengineering team will have to redefine the organisational structure along process lines. Each process must have a clear owner who, along with his team, concentrates on building, nurturing, and developing an area of competency.

Given the nature of Sigma's business, two process-oriented structures may emerge:

• A focused customer service group with the exclusive ownership of the auto segment, which will oversee pricing, innovation, and sales; be multi-skilled; and have the authority to access necessary resources.
• A focused supply-chain team with the exclusive ownership of processes pertaining to cost-reduction, product-quality, and timely delivery. Since the team will be able to interface with the customer, it will focus on competencies that directly impact customer value.

Sigma can then enter the implementation phase. An important task here is to explore the use of infotech to augment skills, and simplify administrative tasks. Sigma should also consider initiatives that will help create a culture that is more conducive to change in the company.

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