THE YEAR IN REVIEW: How Orange County businesses coped during trying times : Rethinking Re-Engineering : Strategy Helps Companies Trim Fat

By JAMES M. GOMEZ

Dec. 26, 1993 12 AM PT

TIMES STAFF WRITER

SANTA ANA — Robert Weygand Jr. hates buzzwords.

But the chief executive officer of Hydrabath Inc. embraced one of the year’s hottest business buzzwords--re-engineering--when he saw what it could do for his small Santa Ana manufacturing company.

Re-engineering, a process of rethinking how a company operates, has helped Hydrabath realize that it was part of a global market for whirlpool fixtures and plastic products and that the company’s precarious financial position could be corrected even though Southern California was in the throes of one of its worst recessions ever.

Rethinking how a company does business can cut costs by as much as 50%, experts say. It helped Hydrabath boost revenue 25% by cutting its own fat by a similar amount, Weygand said.

“When it was explained to me, the whole concept of re-engineering was something I have always felt was right,” Weygand said recently. “I don’t really go for all those buzzwords, but this really made sense.”

As the future becomes increasingly grim for many Orange County companies caught in the stubborn Southern California recession, executives are looking for ways to ensure that profits keep flowing as the county moves into the 21st Century.

And they are not waiting for government task forces, county committees and quasi-public groups like Partnership 2010 and the Consortium for Economic Development to set the stage for new growth opportunities.

More and more, executives in board rooms across the county see re-engineering as the only way to get leaner and meaner in a nastier, more competitive business environment--even if it means, in many instances, laying off hundreds or thousands of workers.

As dire as job losses are, experts said, the long-term benefit to the county of rebuilding profitable corporations is worth the human toll re-engineering is taking. Typically, the process produces more competitive, profitable companies that soon will grow and add workers.

From small firms like Hydrabath, which employs 400 workers, to large conglomerates like aerospace giant Rockwell International Corp. in Seal Beach and drug distributor Bergen Brunswig Corp. in Orange, executives hope to cash in on the promise that re-engineering could rebuild the recession-wrought business community in significant ways.

“My thinking is completely different now,” Weygand said. “I think America’s business mentality has to change.”

Hydrabath was barely squeaking by in 1989 with 300 employees, a sluggish manufacturing process and flat sales. The privately held company, which doesn’t release financial results, retained one of the area’s first re-engineering experts, Y.N. Chang, a former Cal State Fullerton business professor.

Over the next year, Chang helped corporate executives understand the company’s problems, figure out what it should be doing and create a plan to meet new goals. For one thing, the company had ignored the international market, and Chang opened their eyes.

“In the last two years, we have changed our total mode,” Weygand said. “We’re not just slashing and cutting, but we realized we’ve got fat like everybody else. What we did was start critiquing what we are about.”

Hydrabath initially cut its staff in half, to 150 workers, and now is closing its Buena Park plant, consolidating operations at its Santa Ana facility. It also is upgrading its computer system to make its order processing more efficient.

Weygand, in the meantime, logged more than 100,000 miles in international travel this year as the company started tapping foreign markets such as Taiwan, Singapore and Europe.

The results have converted Weygand to the re-engineering concept. His company is more profitable and growing. And his work force has grown to 400--a 33% increase over the company’s “fat” before the re-engineering.

In defining re-engineering, experts begin by explaining what the concept is not.

Re-engineering does not mean simply laying off workers to cut personnel costs, though cuts often occur. Re-engineering also does not mean closing down regional sales and marketing offices or production facilities, though that is often done as well.

What makes re-engineering different from more traditional cost-cutting methods is the need to look at the mired-down company as if it never existed and ask how it would be organized on a clean sheet of paper or built on a green, untouched field, experts said.

Consolidating cumbersome distribution centers, streamlining production methods and facilities or restructuring time-consuming order processing are goals that re-engineers look to accomplish.

Such changes often require the use of computer systems, which are part of nearly every business operation and typically are underused or inefficiently used.

“We had to think in the long term,” Louis Rosso, chief executive of Beckman Instruments Inc. in Fullerton, said about his company’s recently announced re-engineering plans. “One has to be prepared to go through the tough times to get on with opportunities in the future. That is the way good management should act.”

Beckman, which makes medical laboratory instruments, expects to eliminate 750 jobs by next year as the company refocuses its direction from diagnostics to the fast-growing biotechnology sector. It also said it would consolidate operations in Europe to streamline cumbersome distribution facilities and eliminate costly duplication to be more competitive overseas.

Also going through tough times is drug distributor Bergen Brunswig, which overstuffed itself on a corporate buying binge in 1992 and had to retrench this year when fears over health-care reform shrank its revenue.

The company said in September that 500 jobs would be eliminated--some through layoffs--within the next year as part of its re-engineering project. The drug firm expects to close three or four of its 35 drug distribution centers nationwide and has already ceased operations in San Diego and Las Vegas, consolidating much of its operations in Corona.

Closing the superfluous distribution, sales and marketing centers it inherited during its series of acquisitions would save millions of dollars and help it become more flexible in a changing health-care system, corporate executives say.

Executing a re-engineering plan is just as painful as any corporate shake-up, but experts say the results are better and usually can be seen within a year.

Quicksilver Inc. endured the turmoil of layoffs and the resignation of its president, Shaheen Sadeghi, as its re-engineering plans were implemented over the last year, said Robert B. McKnight Jr., chief executive of the Costa Mesa maker of beachwear and other fashions for young men.

But the payoff came recently when the company reported its net income increased to $4.4 million, or 69 cents a share, for the $371,000, or 5 cents a share a year ago. Annual sales increased 6% to $94.6 million from $89.3 million for the previous year.

“In terms of a turnaround, I wouldn’t say we’re done,” McKnight said. “But we’ve definitely improved the earnings with our cost controls. We’re not there yet. We want a lot more.”

Companies in need of re-engineering are keeping management and accounting professionals--the re-engineers--busy. Jim Mottern of accounting giant Ernst & Young in Irvine said that business is booming.

Nearly all top executives who have consulted with him, Mottern said, have considered moving out of Orange County to cut costs and stay competitive into the 21st Century. But his job is to discourage them from taking that option and to show them how to rethink their corporate goals.

Most executives have the tools to re-engineer their firms. What they lack, he said, is the knowledge to reorganize systems and retrain people to think in new ways.

That could mean taking a hard look at how a company handles order-taking, a fertile area for re-engineering. Most companies could save hundreds of thousands of dollars a year--in some cases millions--by merging sales, marketing and accounting divisions, or at least putting them in one room or floor to increase communication and efficiency.

“What they need is a continued focus on doing things quicker in new ways,” Mottern said. “We are always trying to make things less labor intensive.”

Jonathan Moore, president of Training Consortium Inc., a Newport Beach firm specializing in re-engineering, said that corporate cuts, as painful as they are, are necessary after the robust 1980s when many companies became “fat and bloated.”

Moore and other re-engineers counsel executives to set up teams composed of middle managers and lower-level employees to seek out waste, even if it means some would lose jobs or help co-workers end up in unemployment lines.

But, over a period of time, Moore said, the teams “start measuring what they do and find out ways to improve.” Top management must be forceful in pushing re-engineering, but must realize that its own fat has to be cut too.

Most importantly, businesses cannot wait to re-engineer to remain competitive and they can not return to the “fat and sassy” days.

“There is going to be fear, yes, and risk,” Moore said. “But there needs to be a deep change in the corporate landscape. People don’t have any choice but to take whatever means they can to make their own organizations more efficient and effective.”

Some changes needed in corporate mentality call for looking at methods outside American business culture.

Chang, the former business professor who counseled Hydrabath, teaches that corporate executives should look at merging Eastern thinking with Western technology.

Many Asian companies that have made gains in the international marketplace have based their corporate philosophies on Eastern thought, including economy of motion and patience, said Chang, who is publishing a book on re-engineering.

“You must learn to strategize,” he said. “This is an area in which Americans are quite weak.”

In his book, “Revitalizing America’s Business,” to be published in March, Chang argues that American business is facing “unprecedented difficulties and challenges” and that “industry after industry is experiencing structural changes and shake-ups.”

As a complete plan of rethinking, refocusing and reviewing other business cultures, Mottern said, “re-engineering fits our culture.”