'The race is not always to the swift, nor the battle to the strong. But that's the way to bet it'. Thus wrote Damon Runyon, the poet of Broadway, author of Guys and Dolls. In business terms, his message has always rung true - until now. Strong companies were strong in physical assets, strong in financial resources, strong in market share, strong in technological depth. Naturally, enough, they ruled the business world.
If all else failed, the strong could use their superior financial muscle either to buy up lesser colleagues, or to enter new markets in great force, or to reinforce their strength by taking over smaller businesses or merging with other Goliaths. But the enormously strong Goliath, remember, was slain by the much smaller, much swifter David. This has become the correct, compelling metaphor for the revolutionary era whose intensive phase can be dated back to 1993.
In that year, the world saw the first Website. At that moment, unperceived, the business revolution swung decisively away from the strong and towards the swift. Speed and strength, in fact, have become synonymous. The competitive advantage at Dell Computer doesn't lie in its hardware. Its edge is speed: speed in serving the customer, speed in turning over inventory, speed in reacting to demand. Time, moreover, is money. That is a business basic. The fast have taken over the financial superiority of the massive.
In 1998 IBM managed to lose $1 billion on its PC business. Dell, with a lower market share, made $1.5 billion of profit. That is one measure of the financial chasm between the fast-movers and the slow. But the gap yawns wherever the slow-mover turns. In searching for commodities, say, it's no contest between a Website which enables buyers to locate what they want in minutes, and to place their order with equal speed, as against hours required by the traditional round of telephone enquiries (of which some, inevitably, will miss their mark).
The contest would be desperately unequal even if the Website conferred no other advantages, such as giving commodity buyers the certainty of obtaining what they want at the lowest available price. But the time advantage is the key factor in cyberspace, even for a non-profit organisation like Amnesty International. CIO WebBusiness magazine selected Amnesty as one of its 50 best sites in July 1998:
'...its Website trims costs for printing and mailing materials supporting its efforts to protect human rights. But managers say the site's greatest value is in "enabling instantaneous global action", such as letting visitors sign online petitions or send e-mail protesting individual human rights violations'.
'Instantaneous' is a magic word in marketing. Another champion site, Innvest, matches buyers and sellers of 'hospitality' properties: buying, updating and deletion of on-line adds is (again) instantaneous. Even if delay cannot be wholly abolished, greater speed of decision, speed to market and speed of response can all be killer apps. The top speedsters depend vitally on advanced communications for their key strategies: making only against orders, relying on suppliers to hold inventories, outsourcing everything they can and using the Internet to the full.
The greatest time-saving stems from eliminating stages altogether. The conventional progress of a factory order requires a total cycle time of 19 weeks. Of that, three weeks are taken up by processes at the retail outlet. Three and a half days later the order has reached the distributors, where another two weeks pass before the order moves on, taking another three and a half days in transit, to the factory. There eight weeks are consumed in completing an order that may require only hours in manufacturing time.
Winding back down the supply chain takes another three weeks - and the customer finally has the order. Of the 19 elapsed weeks, ll have been wasted on paperwork, and there's still more to come. The customer has to complete the cycle by filling in a warranty card. Inventories and book entries are required all along the line. The disadvantages of this cumbersome, costly routine were obvous to Michael Dell from 'an early age'. His book, Direct from Dell, tells how he became 'fascinated with the idea of eliminating unnecessary steps'.
'So I guess it's not surprising that I started a company based on eliminating the middleman. Dell sells compters directly to our customers, deals directly with our suppliers, and communicates directly with our people, all without the unnecessary and inefficient presence of intermediaries'.
ELIMINATING THE MIDDLE
The economies do not arise just from eliminating the middleman. Generally, the 'middle process' is also inefficient and unnecessary. Using the Web offers a wholly different experience; the customer can at one blow (or click) place the order, which immediately loads the factory, prepares and distributes all the paperwork (including the warranty) in digital form, and books the transportation. A single process has replaced multiple stages. It is as near to instantaneous as manufacturing and movement allow.
'Lean manufacturing' complements lean ordering. The basic and very simple principle is to make in a day only what is sold in a day, thus eliminating inventory and giving rapid delivery to the customer. Yet even new organisations vending the new technology do not exploit its power. In March 1999, for instance, On Digital, whose digital TV service was only a few months old, expected customers to wait 10 days for delivery, not of the set-top box, but for a package of information.
The package should, of course, have been waiting, ready only for a label. That should (again of course) have been printed automatically from the information that the customer had already given. And the package could have left the On Digital premises within the hour. That might have made the difference between gaining or losing a customer. And whatever convoluted route caused the 10 day delay inevitably cost money. So, naturally, did using a human being, instead of the Web, to take the enquiry.
But speed is not its own justification. It must have a purpose. There have been cases where speed-ups proved counter-productive: accelerated vehicle schedules, for instance, which cut transport costs at the expense of displeasing customers, who liked to chat with the delivery men. There have also been instances where going for time targets has resulted in gigantic expense but no outcomes - as when Levi Strauss launched the Customer Service Supply Chain initiative, with the praiseworthy ambition of reducing the time taken to deliver jeans to stores from three weeks to 72 hours.
The company also wanted to market new products in three months, an 80% improvement. The effort involved 200 company executives (chosen from 'Levi's best people', according to Fortune magazine) and 'at least 100 Andersen consultants'. After two grotesquely disruptive years, and an expenditure of $850 million, the initiative was aborted by the board. In 1998, worse still, it now took 27 days for Levi's to deliver to retailers, against 20 for rival J.C.Penney.
The company should have taken the 'killer apps' approach, identifying the major causes of supply chain delays, looking for simple uses of IP technology to remove the bottlenecks, and buying the applications off the shelf. That would have produced great savings in time in two senses: the deliveries would still be made quicker, but the benefits, instead of being lost in two years plus, would have been won in weeks or months. Moreover, vast costs would have been saved.
But then, the Levi's project had not even been designed to cut costs as well as time. Quite the reverse. 'Amazingly, no one seriously considered the possibility that getting a pair of jeans to stores in 72 hours might double or triple Levi's costs'. The whole fiasco, a milestone on the sorry road to shutting 29 factories and losing over 16,000 jobs, was an example of fat thinking - the opposite of Lean Thinking, the title of a book by James P.Womack and Daniel Jones.
To get the best from any technology, including that of information and communications, you look before you leap, think before you act, and (unlike Levi's) aim to hit all three hot buttons: Time, Money and Efficiency, cutting the first, saving the second, and increasing the third. The authors recount what happened at one plant - in a day, not in two years - and they add an astonishing question:
'Production activities for a specific product were rearranged in a day from departments and batches to continuous flow, with a doubling of productivity and a dramatic reduction in errors and scrap...yet the great bulk of activities across the world are still conducted in departmentalised, batch-and-queue fashion fifty years after a dramatically superior way was discovered. Why?'
LAGGING BEHIND POTENTIAL
The answers explain why, even in America, the use of IP technology has lagged so far behind potential. On Bill Gates's estimate, 'The typical company has made 80% of the investment in the technology that can give it a healthy flow of informaionm, yet is typically getting only 20% of the benefits that are now possible'. Womack and Jones note that lean thinking is 'counter-intuitive' (that is, it contradicts the establishe norms); and that it doesn't fit into the frame of conventional financial measures, even though a 'dramatically superior way' self-evidently improves the financial prowess of the firm.
In just the same way, managers under-use IP technology, or don't use it at all, because it requires a wholly different mind-et, and even different measures. How do you measure the return on investment that flows from giving customers what they really desire? That's the starting point for Jones and Womack, as for any effective application of IP technology. The processes are identical:
Identify the value stream for each product or group of products, moving through the three critical tasks of (1) problem-solving (design, engineering, production) through (2) information management to (3) physical transformation (the progress from raw material to finished product in the hands of the user).
Identifying the stream 'almost always exposes enormous, indeed staggering amounts of muda (the Japanese word for waste'). You eliminate this waste by converting to flow. Next the customer 'pulls' the product from you, rather than being fed at your convenience. And, finally, another virtuous circle develops as the firm finds that 'there is no end to the process of reducing effort, time, space, cost and mistakes while offering a product which is ever more nearly what the customer wants.'
One of the biggest wastes is time itself. The cost of waste when people can't get the information they need when they need it is estimated at between 25% and 40% of the total cost of an organisation. The calculation of this gigantic sum is simple. Ask a sample of people at all levels in the organization to keep a record of the time wasted in their day-to-day jobs from being unable to find the information they need. Bear in mind that information from a good IP aplication is immediate - that is, available within three mouse clicks.
After a week's feedback, add up the sample population's wasted time and work out the average hours wasted per employee. Multiply this by the total number of employees to give the wasted time for the week. Multiply by £20 per hour to provide the week's cost of waste. Multiply by 50 to give the total cost for the year, and you will see the massive return available from effective investment in IP technology. And that's without taking into account the factor stressed in Business Week by Ira Sager; 'Speed kills - if you don't have it'.
There's an astonishing contrast between imperative words like those and action. Over the Nineties, the world of business, led by the US, began coming to terms with the Internet. The growth of usage and traffic over the Net could hardly be ignored by managements, governments or the media. The press, in particular, took a whole host of initatives to explain, report and encourage the revolution. Yet despite all the sustained and increasing publicity, and the mounting commercial importance of cyberspace, executives have stayed reluctant to accept the consequences.
In March 1999, a survey of 500 US and European board directors, according to the Financial Times,'showed that few business leaders in Europe had grasped the cost-cutting opportunities offered by the Internet'. The far more exciting opportunities for business transformation lagged even further behind. If opportunities go unseen, competitive threats, too, must be invisible. In fact, the report, produced by the Institute of Directors and Oracle, says that top managements in the UK and France are in 'a state of denial'.
FEAR AND IGNORANCE
The reasons for the highly dangerous condition are well enough known. Fear and ignorance of the technology are prime causes. Neither condition has been much alleviated by the information specialists, who often take too narrow a view. In some cases they oppose developments which have the inevitable consequence of weakening their hold over IT strategy and implementation. After all, an unaided home worker can now buy, for relatively little money, a full-feature, state-of-the-art system for global communication and information.
You wouldn't want every employee to order his or her own system. But that is what the result should feel like. Too few IT departments have made it their mission to help create a new kind of company, bound together and animated by IP technology. That gives their bosses a perfectly good (or bad) excuse for inaction. Procrastination, anyway, is a common executive disease and by no means just in IT. But this is one area where delay can lead to death, even sudden death.
An Andersen Consulting partner, Rudy Puryear, told the FT that even in the US, where clients are much more aware of the strategic need, most of them lack the requisite sense of urgency. He urges the world's top 1,000 companies to adopt three related steps:
1. Link electronically with suppliers and customers
2. Re-engineer the workforce, processes and strategies to exploit the new network
3. Reposition the company in the new world of electronic commerce
You can envisage these three stages as a pyramid. At the base, most major US companies have Websites, Intranets and Extranets which more or less fit the bill. Some have advanced further up the pyramid by instituting changes that use their new technology. At the apex of the pyramid very few of these large and sophisticated organisations have actually transformed their businesses. It's the age-old problem. How do you persuade corporate managements to abandon the systems and strategies that have made their companies, and themselves, rich and successful?
You can try to frighten them with bogeys like Scott Blum. His company, Buy.com, has been trading since November 1997. It could be worth $4 billion in the stock market, even though monthly losses were running at $2 million a month in early 1999. Using the slogan 'the lowest prices on earth', Buy.com sells computers, software, books, videos and electronic games. Blum aims to offet minute gross margins (1%) with massive advertising revenue and ancillary sales. His target, he told Fortune, is to reach $10 billion in sales by 2003.
Sceptics and conservatives can laugh Blum off, and he could of course fail. But there are hundreds of contrarian Blums already, and their number is swelling. Their activities may expand markets. But they will inevitable steal sales from the hides of major competitors - even giants like the car moguls. Detroit is already under threat from Websites which sell new cars. Even if manufacturers' own Websites are successful, their dealers will suffer slashed margins. The old industry model must collapse in front of the new rules.
The lesson of all technologically driven change is that the new order always wins. The operators of transatlantic liners knew that jetliners were a threat. The shipping men did not believe that the airlines would destroy their businesses altogether. They thought that, at worst, the two modes could live alongside each other. That almost never happens. Big business is still reluctant to accept the obvious conclusion. The current state of transition will be resolved, not by evolution, but revolution.
