HONG Kong companies have always adapted to changing business environments by making high-level strategic changes, the most obvious example being the shift of production to China to defeat wage inflation and keep manufacturing costs from spiralling out of control. Another is the dumping of one line of business for another when competition gets too fierce and margins become eroded. But, according to Stanford Millar, managing director of KPMG Peat Marwick's consulting arm, the sudden strategic management move is not always the best way forward, even when it is possible. ''There are lots of companies which can't simply move over the border or go into a new business,'' said Mr Millar. ''The financial services companies, and especially the retail banks are a good example of this group.'' These are turning to another way of reforming business, taking a functional approach and analysing what is being done and how. The results surprise plenty of board directors but not Mr Millar. ''Most studies show that you can make 20 per cent savings,'' he said. The approach has acquired the term ''re-engineering'', which was coined by American management gurus who have written a successful book of the same title. But re-engineering is scarcely a recent invention, according to Mr Millar. ''It has been going on for at least 30 years, it is only the name that's new.'' Re-engineering looks at the processes carried out by a company in doing a task and looks at more efficient ways of doing them. Often making a big efficiency change means simply replacing a number of teams of specialists with a smaller number of generalists. That was how IBM's leasing company saved millions of dollars a year and speeded response time by several hundred per cent. As Mr Millar puts it, ''You have to ignore the organisation and look at the processes.'' Elsewhere, the arrival of management consultants means one thing to employees - massive redundancies on the horizon. In Hong Kong, this is not the case, according to Mr Millar. ''Business volumes are growing here so consultants don't get involved in many layoffs of staff,'' he said. Instead, consultants are freeing staff to build new business and saving the company from another costly round of recruitment. The job is relatively easy in a big corporation. ''Any company with 40,000 employees is easy to re-engineer,'' said Mr Millar. He said: ''You just pull out a layer of management. There always tends to be an overlap between the geographical organisations, the functional organisations and the business line organisations in a company. ''At Standard Chartered Bank, for instance, they used to have mega-regions stacked on top of the regional organisation.'' In Hong Kong, the job is not normally so simple. ''Even in large companies here with more than 5,000 employees the opportunities are less apparent,'' he said. ''I sometimes take a cynical view that business here is not complex. We are dealing with small businesses even inside large corporations. In any case, it's dead easy to manage in a growing market, it's upside management,'' he said. But in some areas at least, the pressure is coming on. Retail banks are likely to be the first to feel the pain and other financial institutions will be close behind, according to Mr Millar. ''The big driver is cost pressure. You can't have 10 per cent inflation here when the rest of the world has inflation of four per cent or less,'' Mr Millar warned. He said: ''Property prices have risen 70 per cent in two years, and that is not sustainable when the principal market is international. ''Retail banks are going to be under massive pressure and so are other businesses selling services to the public including utilities and transport companies.'' Companies in international markets carrying a large workforce would also feel the pain, Mr Millar said, citing Cathay Pacific's move to switch staff abroad. Behind retail banks will come other financial institutions with offices to pay for and increasing competition. ''At the moment brokerages are seeing a growing market, stock market volumes are still going up,'' Mr Millar said, but brokerages were also likely to feel the pinch as growth slowed down and the firms must fight for new business. ''The super profits will vanish,'' he said. ''You won't see people slipping into losses yet but we are heading into a more stable state.'' And as cutting costs to improve margins became a higher priority an ever-increasing number of companies would turn to re-engineering to maintain profits, he said.