If history does repeat itself, as this economic slowdown ends, companies will reinvest the profits from their newfound efficiencies back into the economy. The result: business expands, companies are launched, jobs are created and everyone is at work once again.

But the next round of productivity improvement may not be easy to achieve. We are in an age of "continuing productivity," the mid-stage of the so-called "information age," and well beyond the point where simply installing a new computer application automatically means that the productivity of an enterprise will improve. In fact, there is some evidence that information technology misapplied or mismanaged can make a business harder to operate.

Item: A manufacturing company spends $85 million to install an enterprise resource planning (ERP) system. The system still isn't operating and probably never will.

Item: A conglomerate engages over 300 development consultants to integrate the financial systems of its multiple acquisitions. The project has gone on for years and looks more like a full-employment effort for consultants than a project that will ever deliver real value for the company or its customers.

Item: In many companies, communications technologies (also known as email and voicemail) rule our behaviors. We rush to do what appears to be urgent -- such as answer the message now -- rather than doing what's really important. Everyone seems to be working harder, but it's not clear that we are working better. Being electronically tethered doesn't necessarily mean that people are doing the right work.

These examples are not just meant to point out the perils of technology misapplied. They also illustrate that, although technology will lead to broad improvements in productivity, the benefits will not automatically accrue to all companies. Information technology (IT), like all capabilities, must be intelligently managed.

When done right, there is no question that IT has the power to transform a business. Dell Inc., Cisco Systems Inc. and Wal-Mart Stores Inc. are examples of companies that have mastered technology. Not only do such companies intelligently manage technology, they each recognize that the process of "work" itself will also change.

"How should work be redesigned?" "Who does it?" "Where does it get performed?" These are among the questions that must be asked and answered as new technologies are applied. The next round of technology-driven productivity improvement will require not only the intelligent application of technology, but also massive work changes.

Just look at what happens when a bank goes "electronic." A process that costs $10 for a teller to manually perform costs $1 when handled telephonically and 10 cents when performed by a customer at an ATM machine. Also look at how work inside the bank changes, as more and more customers choose to do their business over the Internet. Real productivity improvement comes from a combination of technology and work change.

These changes will also place new demands on workers. Tellers displaced by technology will have to learn new skills -- such as managing customer relationships, rather than processing transactions. Some workers will make the transition easily, while others will be challenged. Almost everyone will be touched in some way by how technology changes the nature of his or her work.

IT's Early Years
Information technology was first introduced into most companies in the 1950s in the form of accounting applications, and, for more than 40 years, remained principally the domain of finance. Eventually, other applications evolved. Research and development, manufacturing, distribution, marketing, sales and customer service all built their "systems." By the 1970s, every business function had its own computer applications. The technology independence of each department was encouraged by the spread of "mini-computers" -- and distributed computing.

The result was that most departments became more efficient, but it was not clear that whole companies became more productive. In fact, a 1980s MIT study questioned the return on investment from what companies were spending on IT.

The debate that ensued pointed to two possible causes for the failure of technology to pay off. Computing was too localized in departments, so that companies were not really well connected and were not becoming more efficient overall. Information technology was also being used to automate old ways of doing work. Just automating the old stuff only resulted in incremental productivity improvements.

The Age of Reengineering
By 1993, my partner, Mike Hammer, and I entered the debate by introducing the concept of "reengineering." We argued that for companies to dramatically improve their business performance, they had to radically redesign how work was performed. Just automating old work just wasn't going to do it.

In many organizations, work had become too fragmented, too departmentalized and too bureaucratized. Companies needed to focus on their core processes -- customer service, procurement, order fulfillment, for example, we argued. We saw technology as the great enabler -- when combined with work change.

The concept of reengineering caught on. And, while some companies used the "reengineering" process to describe any restructuring or layoff, most companies dramatically changed their operational processes and reaped the benefits of improved productivity. When combined with the power of IT, these changes led to much of the productivity improvements of the last decade.

Critics of radical business change suggest that the age of reengineering may be over. Quite to the contrary, the age of truly reengineering is just beginning. Companies may call their process change efforts something else, but IT -- particularly in the form of the Internet -- now enables ways of operating that were not easily achievable in the early 1990s. The Internet makes information technology ubiquitous and creates the ability for a company to connect internally and externally. It also unlocks a wealth of information.

At the same time, the business pressures that encouraged companies to reengineer in the '90s have intensified. Competition is tougher. Being a low-cost producer is table stakes in almost every industry. Customers are more knowledgeable, sophisticated and demanding. And the rate of business change continues to accelerate.

These factors demand that companies make even more operational changes. I call the next round of change "X-engineering."

Productivity Improvement's Next Level: X-Engineering
The "X" in X-engineering refers to crossing organizational boundaries. We are now at the point where both present and future productivity improvements will come from the redesign of the processes that operate between a company, its customers, suppliers, partners and possibly, its competitors. The potential improvements in efficiency and service are extraordinary when cross-organizational thinking is applied to tech-driven process change.

In healthcare, for example, payers (insurers and HMOs) typically spend 40 cents of every dollar on administrative processes. Most of that money goes to determining how much to pay doctors and hospitals. In the jargon of healthcare, it's called "claims processing." Only 60 cents of every healthcare dollar is spent in delivering real care.

Likewise, in global logistics, 40 cents of every dollar spent to ship a product goes for "paperwork." The processes that exist between organizations are filled with redundancy, errors, breakdown and non-value-added costs. For example, shipping a cargo container across the Atlantic Ocean still requires 26 different documents -- a lot of trees sacrificed for very little value.

But finding and addressing X-engineering opportunities may be even harder than the reengineering work that companies do within their own walls. Three principles are important for success -- to go further than ever envisioned: transparency, standardization and harmonization.

Transparency. In order for a company to connect and collaborate in new ways with its customers and suppliers, all parties must be open about how they operate -- including disclosing what tasks and processes really cost. Currently, most companies operate under a principle of opaqueness, not transparency. The assumption is that a company has something to "hide" or "protect."

In truth, most of a company's processes are the same as those of its competitors'. While some companies do, in fact, have unique products and processes, those are the exception and should, of course, be protected. In the long term, however, a company's sustainable competitive advantage may simply lie in its ability to execute. Execution in an increasingly networked world means deeper collaboration with customers and suppliers. That will demand transparency.

Standardization. Whole industries could become dramatically more efficient if they would adopt standard processes. This has happened to some degree in the financial services industry, but a lot more efficiency could be achieved if banks were willing to share standard process operations. One bank's backroom operation, for example, is much the same as the next, yet, each major commercial bank insists on maintaining its own backroom, often at a cost of a couple of billion dollars each year.

X-engineering will also require more technology standardization than companies have been willing to accept up to now. Over time, the technology infrastructure of many companies -- servers, laptop and desktop devices, networks, and all their supporting software -- has grown without much control. People and departments have acquired technology as they wished, without much regard to how systems and processes might have to be connected, oftentimes in the name of innovation. But increasingly, companies are discovering that disparate, non-communicating technologies are preventing both internal and cross-organizational communications. Standard technologies are also a lot easier to maintain and cost less to manage.

In standardizing technologies, however, companies should avoid treating their infrastructure simply as a utility. The utility concept is becoming a popular metaphor for describing computer hardware, operating software, and connecting networks. But there is far too much information sitting in this infrastructure to compare it to the electric cables that run through a building, and it's too valuable an asset to manage just as a utility.

Harmonization. Companies must understand what real process harmonization means. One company's buying process was designed at a different time and with different objectives than the selling processes of its suppliers. This misalignment leads to friction, breakdowns and high transaction costs. Processes that operate between companies or between a company and its customers need to be rationalized into a single set of processes that work for all parties. Just fixing what happens at the interface of a transaction will not deliver the productivity improvement that's possible in today's technology-enabled environment.

For example, U.S.-based Owens and Minor -- the largest supplier of medical supplies to hospital systems -- asked customers to disclose more about how they operate. How does a medical device get into an operating suite? Why does a delivery truck have to come to hospital several times a day? Owens and Minor also opened its books and disclosed the costs of those logistics. Under the leadership of its chief executive, Gil Minor, shared procurement and materials management processes were introduced to yield lower prices for the customer and higher margins for Owens and Minor. That's real harmonization.

Technology Also Enables Offshoring
Besides reengineering and X-engineering, a third practice that many companies will adopt or test within this decade is "offshoring." The practice has already become widespread and will continue to cause a massive redistribution of where work gets performed.

Offshoring does not necessarily involve the redesign of work, but generally implies the movement of work to a country where work can be performed at a lower cost with improved quality. Although this usually results in an individual company's lowering its costs and improving its competitiveness, offshoring does not conform to the classic definition of productivity improvement -- getting more output for each unit of work input.

But the phenomenon is too important to ignore, as it relates to what IT enables. Insurance claims could not be processed in Ireland, customer service calls could not be answered in India and transistors could not be designed in Singapore for manufacture in Taiwan without IT. Advances in both processing and telecommunications allow information, money, services and products to move freely and cheaply across international boarders. Technology makes the global economy work.

The question that is being debated, however, is whether what is good for General Motors Corp. -- and other U.S. companies that send work offshore -- is any longer good for the country, as jobs are lost. Companies, however, are sure to continue this practice as they search for ways to become more competitive. Countries like the United States will have to take some steps to protect certain critical skills. For example, there would be significant business and security risk if the U.S. were to loose all of its ship- and plane-building skills to China.

But countries that have taken extreme protective positions around work and jobs -- France comes to mind -- have bred companies with poor productivity, unable to compete in global markets. The ultimate answer for the U.S. will be in innovation and job creation. What is the next technology?

Technology's 'Goodness'
As the issue of jobs is debated and as economies struggle with the challenge of what to do about jobs that are lost because of either real improvements in productivity or offshoring -- or a combination of both -- it will be helpful to recall Adam Smith's sentiments. Smith believed that advances in technology result in the betterment of the public welfare, and that improvements in productivity will somehow turn out to be good. There is also something inevitable about the march of technology.

Smith has his 20th century protégés in Marconi and Edison; and Microsoft's Bill Gates, Michael Dell and Cisco's John Chambers are 21st century technology icons. Gates, Dell and Chambers all know that today's technology will have the combined benefit of providing both new levels of connectivity and an extraordinary access to knowledge. It is this new form of networked intelligence that will propel the next level of productivity.

Like all these proselytizers, I believe in the "goodness" of technology. Innovation and new technologies will eventually lead to the creation of jobs, as well as to improvements in productivity. Over time, new technologies do improve the quality of life. But the speed with which that happens is determined by how intelligently that technology is managed.

Learning From the Past When Technology Changes, But Work Doesn't The biggest disasters in information technology have generally occurred when companies assume they can buy process change in a bottle or off a shelf. They install a large software package in order to implement major business process changes and expect the changes to occur automatically. The first symptom of this problem occurs when line executives approve the development of major systems to affect business change, and then abandon the effort to the IT department or an outside consultant. When this occurs, the system gets developed without broad corporate acknowledgement of the work, and sometimes, organizational changes will be required to achieve productivity improvement. Usually, the organization does not wake up to what's really required until the system is close to implementation. At that point, work stops, the system gets redesigned to better fit how the organization will work, and the process change begins. In the time it takes, however, both a lot of years and a lot of money can be lost. Best practice says that businesses processes should be redesigned first, then apply technology. At a minimum, the process and technology work should go on in parallel. When Technology Change Does Not Go Far Enough At a recent staff meeting of a major hospital system, the nursing executives were bitterly complaining that new systems and processes were creating work overload and distracting them from their real work, patient care. New computerized systems had been overlaid on top of old paper systems, but the paper had not gone away. There was now twice the amount of "paperwork" to do, and, with a nursing shortage, fewer people to do the work. This problem often occurs when a company does not go far enough in making work and technology changes, or when systems are poorly designed so they become a burden on the people they are intended to help. Best practice says that you should be aggressive and radical in your process changes. Don't leave the old work around. When Line Executives Don't Understand Process Many line executives and managers don't think "process." They see a company as being comprised of customers, strategies, products, services, people or structure. These are all, of course, important elements of a company. But in essence, all organizations are really a collection of processes. Some processes deal with customers, services and others deal with people. The secret to understanding productivity in a company is in unlocking its processes, figuring out how things work -- and then figuring our how they should work. When a senior executive doesn't "get" process, don't try to change his or her point of view. Just tell him or her what productivity improvement you can deliver and find some understanding executives in the company who will support your efforts. Best practice says productivity improvement can come bottom-up in a company, but it happens a lot easier when it is inspired from the top.

Six Steps for Managing Technology for Improved Productivity

1. Focus on business opportunities that drive effectiveness and efficiency. Where in the company's operations are excess costs, excess capital, too much time in processes and too many breakdowns?
2. Know what business result you want to achieve.
3. Target dramatic improvements in productivity and think big. Most companies have corporate antibodies that can kill incremental change programs.
4. Align technology initiatives with the business objectives.
5. Manage both processes and technology in the change.
6. Remember: information technology initiatives still require superb execution. Information technology, as a utility, is still a fantasy.

JAMES A. CHAMPY is Chairman of Perot Systems' consulting practice and also head of strategy. He's a leading authority on organizational issues associated with reengineering, change and renewal, and the author/coauthor of several best-selling books, including Reengineering the Corporation and X-Engineering. He can be reached at james.champy@ps.net.

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FEI's flagship publication, Financial Executive magazine, has won another award -- an Eastern Regional gold (first place) award from the American Society of Business Press Editors (ASBPE) in their annual competition. FE won in the editorial division for its March 2002 special section on "Best Practices." This is the fourth juried award FE has won in the past two years. The award was presented in Boston on Monday, June 9.