Q&A with James Champy

James Champy is back at it. Seven years ago his Reengineering the Corporation, coauthored with Michael Hammer, turned business on its head. But as quickly as it appeared, reengineering fell out of favor. Champy believes too many managers glommed onto the phrase and instituted harsh cutbacks without understanding the theory or the rigors of organizational process design. By the end of the 1990s, the term business process reengineering (BPR) was taboo.

BPR was and still is, however, a key tool for creating a framework in which to accommodate information technology and fast-changing market forces. Its legacy helped to create the conditions for everything from the advent of enterprise resource planning (ERP) systems to the job-hopping ethos of today's free-agent market, which seems to be a knowledge-economy rebuttal of the idea of lifelong employment.

Champy, meanwhile, has remained involved in consulting. With a background in civil engineering (and a degree from MIT) and law, he served as chairman of CSC Index, the consulting arm of Computer Sciences Corp., and now is chairman of Perot Systems' consulting practice. Early this year his Arc of Ambition (coauthored with Nitin Nohira and published by Perseus Books), a study of ambition through the ages that culminates in an examination of contemporary Napoleons such as Michael Dell and Sam Walton, was released.

As a member of the board of directors of MetalSite, a business-to-business (B2B) industry portal and chief strategist at Perot Systems Champy is in the midst of the new economy. Warren Karlenzig, former Knowledge Management editor-in-chief, and Steve Barth, KMM editor-at-large, caught up with him recently in San Francisco during his book tour.

KMM: What is the role of knowledge processes and intellectual capital flow in Internet business?
Competition increasingly is based on product. That is a terrible position to be in if you make or sell any product or service. I see nothing in these electronic commerce channels that is going to reverse that.

The underlying theory with any retailer right now is about convenience and time. The challenge is to find different ways of creating consumer value. Everybody speaks to that, but there are not many examples of creating new and different forms of consumer value. The answer may be in the consumer experience. To get into that field of research takes a deep understanding of who the ultimate customer is, what the current experience is and what kind of experience you can create. Very few companies have moved into that territory.

If you talk about where knowledge is important as it relates to the customer, [expertise in] that field is just not there. Strategy consultants don't go near that stuff. They do traditional marketing. It doesn't go into the depth you need. Most consumer product companies know nothing about the ultimate consumer. There is a huge opportunity and need in this field.

KMM: How do you view the B2B paradigm, with its many types of relationships and challenges?
The B2B market presents a great opportunity that will go deeper and further than retail. B2B transactions require deep understanding of the customer, the whole chain and experience. The opportunity is to reengineer your processes and the customer's processes to create what is sometimes called "stickiness." By reengineering your processes and your suppliers and their processes, you can create real value propositions and drive tremendous amounts of cost out of organizations.

I see the B2B marketplace as eventually moving to some kind of mega-digital marketplaces, where "industry" is broadly defined. The Internet Capital Group [a B2B Internet venture capital fund] will tell you that they want to build and own marketplaces in 40 vertical and 10 horizontal industries so that the technology infrastructure can support their strategy. I think there will be consolidation and there will emerge mega-marketplaces, to which consumers, manufacturers and distributors go to buy information, products and computing capability and to do transactions.

KMM: The search, then, is not to find a successful market but to find the right techno-economic model?
The markets are there, but the techno-economic models are not. Again, I feel more confidence in finding the techno-economic model on the business-to-business side. They're more complex, but I feel more confidence in them than in the consumer side. It is not a casual relationship. You get into business-to-business, and stock and credit are huge problems. The [B2B] interactions are more predictable, but you have to design the processes and the technology to support those interactions. Once you have done that, you've got a real engine.

KMM: What is the difference between, say, Amazon.com as an Internet business and General Motors as an Internet business?
I can answer that from a couple of different perspectives. In terms of the launch, there is a huge difference in that Amazon started with a clean sheet of paper. It is a hell of a lot easier to launch an Amazon than it is to take GM into the Internet world. It didn't have to depend on any old channels or worry about legacy systems in an automobile dealership network. Once they are out there operating, I have a sense that there is a difference that should be reflected in the complexity of the product that they are offering and that therefore GM should have more opportunity to create stickiness--to create value in what they do--than an Amazon does. Amazon is much more commodity-like than GM.

KMM: Doesn't a company that is going to last more than 10 years have to build on the quality of its product and its processes?
The ultimate advantage may be in the techno-economic model. GM will own much more of the chain than an Amazon, in order to get the economics to work. Amazon is nothing more than a retailer, with big logistics and distribution centers, all the problems of a retailer and a slightly different set of channels for the consumer. When I look at GM, I see a much richer set of things to work with. It's a lot more difficult to transform, but the people in bricks-and-mortar businesses who have the sensibility to develop digital channels are much more likely to succeed in the long term than a pure interface company.

Folks who are around these interface companies have no sense of operations or of what capital is. A lot of these entrepreneurs do not have the persistence to live through GM-like ventures; they're very short-term. This raises the question of ambition. If your ambition is to create some wealth and check out in two or three years, you're going to build a different kind of business than if your ambition is like Michael Dell's. Some of these other characters have no sense of what a real company is.

KMM: Let's look back at a couple of precursors to knowledge management. What became of the quality movement, for one, and reengineering, for another?
I actually believe that the age of reengineering is just beginning. Ideas on process change are much more applicable than they were 10 years ago. I don't care what it is going to be called going forward, but we in business will go through extraordinary process change. We [in BPR] were more radical than the quality movement in achieving goals more quickly and more dramatically, although a well-orchestrated quality program can create radical improvement in performance. For me, the quality movement represented a state of mind. If you look at [quality efforts] as business processes, they were trivialized to a great degree, but I don't think they failed. They had and will continue to have great impact.

I don't think that the knowledge management movement is as powerful as the ideas of quality and reengineering. Reengineering was about changing the process, and [as a result] everybody in the culture will change. But we didn't put enough emphasis on the cultural. There has always been a debate in organizational change as to whether you change what people do first, in order to change how they think, or change the way people think and then change what they do. I am a believer in changing what they do first and getting them to experience the physical nature of the change. Then it is more likely-but not guaranteed-that you will be able to change how they think. At the same time, if the culture and fundamental behaviors don't change, nothing sticks. Even with big things that companies do, you'll slide back.