The information-based company depends on two nervous systems - the private and secure Intranet for internal use, and the external network linking customers, suppliers and the general public to the central brain. That brain is everywhere and nowhere, acquiring, storing and processing the knowledge which runs the 'cybercorp', a.k.a the 'E-corporation'.
As Fortune headlined in December 1998, 'The smartest companies are using the Net to create a whole new way of doing business. Call it the E-corporation'. The accompanying article by Gary Hamel and Jeff Sampler insists that 'a real E-corp isn't just using the Internet to alter its approach to markets and customers: it's combining computers, the Web and the massively complex programs known as enterprise software to change everything about how it operates'.
The word 'cybercorp' was coined by James Martin, a famous industry guru, and used as the title for a book on 'The New Business Revolution'. His paragon is the virtual company, with 'virtual' meaning 'that something appears to exist...when in actuality it does not'. This entity, which also merits the description 'everywhere and nowhere', is only one of the state-of-the-art transformations in progress in millennial business. Most could happen (and many have) without the Internet: yet most cannot be fully grasped without understanding the impact of cyberspace.
The IT revolution has vastly enhanced management's ability to deploy new, accelerated processes. Companies that first and most avidly embrace the new technologies of management and information are putting irresistible pressure on the laggards. The pace-makers, writes Martin, 'think of business opportunities in terms of cyberspace, radically changed marketing, value streams reinvented for real-time interaction, agile intercorporate relationships and new employee teams'. The internal and external 'nervous systems', in a very real sense, are the company.
The nervous system metaphor (with the word 'digital' in front) is also used by Bill Gates in his 1999 book, Business@the Speed of Thought. This is the summation of Gates's conversion to the Internet, one of the great U-turns of business. When he published The Way Ahead in 1995, the master entrepreneur, acclaimed as a technological seer, seemed oddly oblivious to the world-changing importance of the Net. By the second edition in 1996, the Internet had moved to stage centre - luckily for Microsoft, which might otherwise have suffered total eclipse. Now Gates has undergone a truly Pauline conversion to cyberspace, and every manager needs to understand why.
The regular use of PCs at work and at home, routine employment of e-mail, the spread of personal digital devices and the rapidly burgeoning millions of Internet users are enlarging and changing the boundaries of the wired world all the time. In the last year of the old Millennium, free Internet access spread like a bushfire through Britain: at the same time in the US, the first PCs were being given away to people signing up for Internet access. You need no great prophetic powers to see the consequences of this sea-change.
As people's lives change, so will their work. Riding the Revolution demands changing the organisation, and how it is managed, in order to meet fast changing and more imperious demands from customer. Their use of the World Wide Web still seems peripheral to many managers, who, despite astronomical growth, take comfort in the relatively small size of Internet transactions. The comfort won't last long. Gates rightly regards the 'killer apps' within Microsoft as the indispensable foundations of the equally murderous applications that customers can make using his software - and that is most certainly true.
The phrase 'killer app', though, contains one trap. It suggests that once the application is in place, the 'kill' has been made. The IP technology, however, allows constant revision, without which the best of apps may lose its cutting and killing edge. CIO WebBusiness magazine describes this revision as an 'imperative', adding that 'Web work is never done'. Exactly the same imperative applies to Intranets (the core of Microsoft's 'digital nervous system'). The magazine's 'champions' at both varieties of application adopt both continuous and radical change.
SCOPE AND SERVICEThe three 'returning champions' of 1997 who also featured in 1998's Website rankings 'all demonstrated the next year that 'they'd significantly improved their sites' scope and service. The returnees included Cisco, the biggest Webseller of them all, which derives over half its revenues from its site. Cisco demonstrates the truth that, once a site is established commercially, the key to sustained success is to widen the offer to attract new customers and increase the business won from existing users.
That one-two combination punch is the Holy Grail of all marketers. For some businesses, the double hit is made necessary by the fact that Web customers are being converted from existing sales - a prospect (the dreaded 'cannibalisation' that frightens some companies away from using the Web at all. Their fright may rob them of a far bigger prize, getting new customers and new business on a significantly greater scale: exactly what Charles Schwab won after adding an Internet service and sacrificing $124 million through lower commissions.
Another champion Website belongs to the US Corporation Co., which provides one-stop shopping for research, retrieval and filing of public business forms covering all 50 states. The corporations and law firms who patronised the service used to buy only the company's proprietary software. Many of them have converted to the firm's IncSpot Website, with remarkable results. In 14 months, IncSpot registered four times as many customers as the software product had acquired in five years. In other words, cannibalising its own product, far from losing business, expanded IncSpot greatly.
That kind of experience is why one of the slides we were using well into 1999 badly needed revision. It talked about the visionaries who have the 'courage' to take their organisations into the new era. How much courage do you require to buy £100 notes for a pound coin? Benefits like those won by IncSpot or Charles Schwab are the equivalent. It takes foolhardiness to throw the opportunity away - especially since the cost of winning is often so small. And do you need courage to see the folly of....
• Sticking with paperwork systems when digital text will execute the same tasks far more efficiently
• Making team members and teams work independently when they could use the same data simultaneously
• Having out-of-date and incomplete information about sales and customers
• Keeping suppliers and customers in the dark, and being equally ignorant about them yourself, instead of developing a true, close business partnership.
The digital office, genuine groupwork, the real time information system and supplier partnerships are all readily available. Moreover, you still have a chance to catch up - if you hurry to enter the race. All the other laggards who have yet to transact any serious business on the Internet have left gigantic openings for others. Less than 1% of the US gross domestic product will be transacted on the Internet by 2001. That, however, represents an eightfold increase over 1997. As the number of connections with the Internet mushrooms, to achieve saturation quite soon into the Millennium, the trend to the Net will become irresistible and irreversible.
There's another harmful side to the four follies listed above. The customer actually wants what the company is denying. Dealing with a company over the Web has great advantages over personal shopping, including grater convenience and faster service. Dealing with people who know all about you and your needs, and have the information literally at their fingertips, is far superior to the alternative. Not only your treatment, but what you are buying can be personalised. The new jargon 'customer-centric' is acquiring real meaning as relationships are strengthened by the new technology.
Managers have been abjured for years to achieve 'customer focus', to begin and end all processes with the customers, first defining and then fulfilling their needs, and constantly changing as markets and competition change. Paying lip-service to that strategy was an option for management, and the one most commonly taken. The option no longer exists. But the cybercorp is not just a conventional corporation with some cyberspace technology grafted on. The cybercorp is a whole new kind of organisation, which works, not because of its systems, but through them.
GUNK IN, GUNK OUT
The old GIGO saw about computers ('Gunk In, Gunk Out') still applies. Microsoft's own 'digital nervous system' (DNS), for instance, hasn't prevented a whole series of mishaps and mistakes, from the failure to grasp the early significance of the Internet to the weak competition against Intuit in financial software. The explanation may lie partly in the ultimate autocracy of the organisation: Gates takes all the large decisions, and many small. Also, a proliferation of digital systems, and insistence on their use, can mislead people into thinking that the system is the business. It isn't, even for amazon.com.
Several of Gates's examples of excellent, pathfinding use of the DNS are unconvincing, given the actual marketplace and workplace results. He heaps praise on Marks & Spencer and its use of IT to 'respond immediately to customer preferences and to achieve the kind of personalised service that's impossible to get at a typical supermarket'. The praise sounds very unconvincing after the Christmas 1999 season in which M&S pitched its demand forecasts far too high. It thus oversupplied a market which, in any case, had moved away from the company's fashions and foods, and towards those of other suppliers.
When analysts and journalists looked at the resulting debacle (which coincided with an embarrassing public squabble over who should be the next chief executive), they smote M&S hip and thigh - for failing to meet customer preferences, of course. A senior company executive blames the troubles in part on the screens: managers had become so intent on studying the data that they had forgotten to study the customer. Far more important, however, was the effect of a top-heavy corporate structure which still managed the company in conventional, bureaucratic ways.
Gates also praises Boeing's use of IT. But its systems didn't prevent Boeing from taking on far more jetliner orders than it could meet with its existing production capacity and methods. In 1998, that had disastrous results. Now, a 'new digital process will...drive Boeing's entire production': but that is slamming the stable door after the horse (and with it the boss of airliner production) has bolted. With only one much smaller competitor, Airbus Industries, in a booming world airliner market, Boeing in March 1999 was valued at $34 billion, a humiliating 40% less than its sales.
Even more humiliating, that is 60% less than the value of Lucent Technologies, the spun-off manufacturing arm of phone giant AT&T. Lucent is half Boeing's size and earns less profit. The Seattle aerospace company could take lessons from its neighbour, Microsoft, in the vital characteristics of the cybercorp: outsourcing everything but its core activities to outside suppliers, keeping full-time employment as low as possible, having its work done in the best and/or most economic location, and (unlike Boeing) continuously acting to shorten cycle time and improve process speed.
As Martin writes in Cybercorp, the question to ask is 'What should my corporation look like if it takes maximum advantage of cyberspace, cybernetics and superhighways?'. The answers, 'for many in traditional companies...are startling'. The crucial point, in Martin's view, is that the cybercorp standing alone is far less powerful than cybercorps linked electronically:
'An order placed in Spain with an order-entry computer in France triggers manufacturing planning software in New York to place items into a manufacturing schedule in Dallas, which requires chips from Japan to be built into circuit boards in Singapore, with final assembly in the robotic factory in Dallas and computer-controlled shipment from a warehouse in Milan'.
The cybercorp has no boundaries. But it does have rules, and they do not change, even within a corporation that is build round change. Martin calls this 'fundamental wisdom'. What he lists under that heading wouldn't suprise anybody at a business school, whether professor or student: 'core values, strong cultures, clearly articulated vision, audacious goals, continuous process improvement, and management who pay careful atention to detail'. These could lie down perfectly comfortably with the eight attributes which Tom Peters and Robert Waterman enunciated in In Search of Excellence in 1983. So what's new?
Martin's answer is a charter for corporate subversives. The 'fundamental wisdom' is the wisdom of stability, which no longer exists. The cybercorp has 'different clockwork, different architecture, changed marketing'. It is virtual in operation (that is, using outsourcing and direct connections to customers and suppliers). It is 'as fluid as mercury' and can 'dynamically link competences from agile webs of associates'. This is an organisation 'designed for very fast evolution', which needs 'new thinking'. The chances of a traditional, conventional business developing these attributes are virtually (le mot juste) nil.
TEN BEHAVIOUR CHANGES
You can't expect General Motors, ICI, Siemens, Philips or Renault to throw in the towel and wait to die. Right down the corporate scale, the imperative is to change behaviour in the hope (indeed, the knowledge) that if behaviour changes sufficiently, so will culture. Martin has a powerful and convincing list of ten behaviour changes that may well work wonders:
1. Eliminate delays where possible
2. Link causes and geographically distant effects
3. Link causes and time-distant effects
4. Combine responsibility for cause and effect
5. Stop feedback before it becomes dangerous
6. Simulate the system dynamics
7. Facilitate learning about system behaviour
8. Build closer interactions among trading partners
9. Simplify systems and their human interactions
10. Stop building stovepipe systems
We would strongly endorse this thinking. (1) Using IP technology will reduce delays by just-in-time techniques, continuous flow manufacturing, real-time information exchange, etc. (2) Internet or intranet systems will enable you to see the consequences in Asia of a market decision taken in East Anglia. (3) The system will watch out for consequences remote in time and relay them instantly. (4) Ignore hierarchy: reorganise activities round value streams, and use electronic links so members know what is happening all the way down the stream.
(5) Design processes to react to feedback before problems escalate dangerously (6) Use simulation to teach managers how the system operates and to experiment with variations in safety (7) Simulation also helps to establish systems thinking, and show managers how to recognise 'counter-intuitive' situations: for example, when incresing promotion to meet sales targets results in less profit, not more. (8) Build close relationships between trading partners 'to prevent overswings, delays and harmful feedback' (9) 'Multi-stage processes can often be replaced with one team' with digital information. So start replacing.
It's the tenth Martin recommendation that strikes home hardest. In company after company, departments and functions and profit centres which act as if nobody else existed. Outside, retailers and distributors operate independently of the supplier. Their separate IT systems seek to optimise their individual performance, but in doing so do worse than sub-optimise the whole: they can destroy it. Use IP technology to create shared systems and you will not yet have a cybercorp. But you will have taken a long stride in the right direction.
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