On The Continent, A New Era Is Also DawningFred Guterl
When it comes to information technologies, the 1980s seemed to last longer in Europe than in the U.S. By 1990, recession and rising global competition were forcing U.S. corporations to question their use of technology. In Europe, however, companies were still laying plans to move into the unified market and into Eastern Europe. As businesses expanded, so did computer budgets.
By now, a new era has dawned on the Continent: a period of slow economic growth and unpre-cedented competition. And that's bad news for the computer salesmen who used to find companies such as Sweden's ICA Handlarnas pushovers for new gear. By the early 1990s, as Sweden prepared to join the European Community, the Stockholm-based $7.9 billion food cooperative was worried that competition would grab market share and crimp its fat profit margins. A streamlining was in order, and ICA's information systems would have to play a role.
Up until then, all those computers had done little to help the bottom line. In fact, because the three sales regions couldn't share their data, the movement of goods to retail stores was inefficient, and the regional offices sometimes ran marketing campaigns that conflicted with one other. To straighten things out, ICA hired Andersen Consulting.
Today, a "reengineered" ICA has linked all of its 3,350 retail stores to a single mainframe data base. With inventory data more readily available, the company has been able to shut a third of its warehouses and distribution centers and has halved its overall costs. It slashed the wholesaling work force of 5,000 by 30% over three years, even as revenue grew more than 15%. More job cuts are planned, but the gains aren't merely in cost reduction. "Now that we have the infrastructure, we can focus on the best way to organize the work," says Torsten Engevik, director and chief information officer at ICA. He's fine-tuning marketing with data on every sale and may eliminate invoices entirely by paying suppliers for goods as they enter a warehouse.
SLIPUPS. ICA is hardly alone. Other European companies that are jumping on the reengineering bandwagon range from Britain's Reuters Holdings and Rolls-Royce Motor Cars to Union Bank of Switzerland, Ciba-Geigy, and Siemens. "As competition hots up, they're seeing the need to rethink what they're doing," says William Barnard, managing partner in Europe for Andersen Consulting's strategic management practice. In Europe, Andersen now competes with outfits such as Oasis, BMS Bossard, and Index Management.
As in the U.S., a major reengineering goal is improving relations with customers. In 1990, John Parcell, managing director of Reuters' British arm, was deluged with customer complaints. The problem was that several departments were dealing independently with subscribers of Reuters' information service. There were too many slipups, and Reuters was losing market share. Parcell decided to reorganize his separate marketing, sales, and installation departments into a multitude of three-person teams. Now terminals are installed in less than two days, down from five, and they're up and running in a matter of minutes.
The companies doing the most reengineering are those that face new competition, whether through deregulation or the single market. Retailing, financial services, and telecommunications are ahead, while auto, steel, and machine-tool makers are lagging. Sometimes, as in Italy and Germany, strong unions stall reengineering. Then there are cultural factors. Pride in their craft keeps German workers from embracing change, says Gunter Conrad, a partner at Andersen Consulting in Munich: "When you used to be the best manufacturers in the world, it is sometimes difficult to admit that other ways of doings things might be better."
The cultural impediments in Europe are nothing compared with those in Japan. Its bloated corporations could be far more efficient, says Yotaro Suzuki, senior vice-president of the Japan Institute of Office Automation. "But reengineering would require changing basic facets of the Japanese business environment and culture."
"Different countries and industries are not just going to adopt the North American model," says James E. Short, assistant professor of information management at London Business School. Ultimately, Europe and Japan will have to find their own paths to the productivity targets being set by economic competitors in the U.S. and elsewhere.