When Michael Hammer and I conceived our 1993 bestseller, Reengineering the Corporation, we recognized that the economy confronted a period of enormous change and that businesses urgently needed ways to respond. On all sides, companies were beset by globalization, by the sudden invasions of once-safe markets, by the growing demands of ever more sophisticated customers. All too many were strangling in departmentalization, mired in their single-minded focus on individual tasks. Our message: Work would have to be redesigned -- reengineered, we called it -- in terms of processes rather than tasks or departments.

The book touched a nerve, setting off a great wave of reengineering in company after company around the world. True to our vision, reengineering achieved enormous efficiencies. For example, a recent Massachusetts Institute of Technology (MIT) study, found that reengineering in the aerospace industry has led to a 30 percent boost in productivity since 1993. Similar productivity gains were reported in industries ranging from insurance to computer component manufacturing.

The impact of reengineering, however, was internal; by and large, the reforms ended at the company gate. That is no longer enough. The technology revolution and the global economic realignment of the past five years demand that businesses prepare for the next stage of transformation. The advances of reengineering must be extended to include all stakeholders -- not just a company's shareholders, but its managers, employees, customers, suppliers, and partners as well.

I have heard much criticism that the efficiencies created by the first round of reengineering mainly benefited shareholders at the expense of customers and employees. As banks merged, for example, staffs were consolidated and downsized in the name of reengineering. Fewer people were asked to do more work, while others were laid off and customer service deteriorated. That imbalance cannot be sustained. Indeed, shareholders can expect to go on profiting from business changes only if -- a crucial if -- customers and employees begin to benefit as well.

What the world's harsh new economic conditions teach us, above all, is that every part of business is now connected at some level to every other part. All are interdependent. No part can thrive in isolation. Like the human body, the whole is healthy only if the parts are healthy. This book was written to help managers confront the new challenge of connectedness and interdependency. Where reengineering showed managers how to organize work around processes inside a company, X-engineering argues that the company must now extend its processes outside -- hence the X, which stands for crossing boundaries between organizations. When an organization's processes are integrated with those of other companies, all the partners can pool their efforts and effectively become a new multi-company enterprise, far stronger than its individual members could ever be on their own.

X-engineering is the art and science of using technology-enabled processes to connect businesses with other businesses and companies with their customers to achieve dramatic improvements in efficiency and create value for everyone involved.

What is driving this sweeping change is a combination of global competitive pressure and the frustrating inefficiency and redundancy that still persists in work relationships between organizations and with customers. The change is enabled, of course, by that all-purpose information medium, the ubiquitous Internet, and its associated technologies. When I call my approach X-engineering, I mean to invoke boundary-crossing on a scale approaching the Internet's ability to connect the world in a seamless web of transactions. This is hardly far-fetched. Many large organizations have already adopted forms of X-engineering, in practice if not yet in name.

Most businesspeople, I suspect, think of the reengineering movement as a thing of the past. I think it has just begun. X-engineering is reengineering squared: a vastly expanded new version, redesigned and refitted for timely service in the world's tough new business climate. With all due immodesty, I predict that the corporate transformations spurred by X-engineering in this decade will dwarf those wrought by reengineering in the last one.

Reengineering and X-engineering are alike in that they both make it possible to greatly improve business performance. They both require radical rethinking and fundamental change, and they both have a process focus. Then they part company. Reengineering is applied within the organization largely to cut costs, raise quality, and increase speed and productivity. X-engineering also improves internal efficiency, but that is just the beginning. It promises vast improvement in operations and processes across organizations -- that is, among companies and their suppliers, partners, and customers. The result will be breakthrough innovations in the ways companies operate and new value propositions for customers. Ultimately, the X-engineered corporation mobilizes not only its own improved processes but also those of its X-engineered allies.

The potential impact of X-engineering can be glimpsed in this simple fact: Business spends about $2 trillion a year on logistics, 40 percent of which goes for paperwork and administration. X-engineering those processes could achieve mammoth savings. Right now, for example, the routine process of shipping something across the Atlantic is a logistical nightmare, thanks to red tape that requires shippers to execute 26 separate documents. If X-engineering could slash these administrative costs by half -- a relatively modest ambition -- companies and presumably consumers would be richer by $400 billion a year.

In the chapters ahead, I set forth in detail the theory and practice of X-engineering. I also offer case histories of some of the businesses that have made great strides by applying X-engineering concepts. In this chapter, my goal is more modest. I show how reengineering and X-engineering were born. I explain why the business world has been so slow to adapt to the Internet despite its huge potential, and I detail how this new technology is changing the very definition of the corporation.