digital revolution

The conversion of Bill Gates to the Internet is 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, as shown by his new book, Business@the Speed of Light, Gates has undergone a truly Pauline conversion to cyberspace - and every manager needs to understand why.

He now sees that the emerging hardware, software and communication standards 'will reshape business and consumer behaviour'. The 'will' still reads oddly. That reshaping, as Thinking Managers has previously stressed, is already taking place on a broad front and large scale. Most of the functions Gates offers as predictions have been widely applied for years. People 'will regularly use PCs at work and at home'; they do. They also already 'use e-mail routinely' (especially Gates), and are connected to the Internet in their millions. Millions also carry digital devices containing personal and business information.

It takes no great prophetic leap to see that these tools, deployed by so many people, will spread to the great majority, even without the new consumer devices that are fast appearing. Gates fits current and impending developments into two important constructs: 'Web workstyle' and 'Web lifestyle'. The first springs from the use of digital methods to change business processes. 'Web lifestyle' changes the nature of the relationship between consumers and the businesses which serve them.

INFLECTION POINTS
The two 'styles' obviously interact. You badly need changed corporate processes to meet the demands of customers who want to transact their business on-line. At present, managers can still treat Web transactions as ancillary; they represent only a tiny proportion of all trade. But Gates believes strongly in a concept popularised by his friend Andy Grove, the CEO of Intel. The latter stresses the importance of 'inflection points', moments at which the technology generates 'sudden and massive' change.

If you're not participating in the current inflection point , you should be. Are you fully and practically committed to using the new IT for?....
• Replacing paperwork with digital text
• Facilitating groupwork by enabling teams to use the same data simultaneously
• Providing up-to-the-minute information about sales and customers to improve responsiveness
• Facilitating relationships with business partners

If not, you still have a chance to catch up - if you hurry. Even now, only a tiny percentage of transactions in the US, let alone worldwide, are transacted on the Internet. Gates cites the fact that 'only about one million of the fifteen billion total bills in the United States are paid electronically'. One year into the Millennium more than 60% of US households will have PCs and 85% will have Internet access. This is not a vision, remember, but an extrapolation of irreversible trends. Free Internet access in the UK, and free PCs for Internet customers in the US, are the very latest harbingers of a mass market explosion.

The PC has already demonstrated the unstoppable advance of technology and consequent profusion of popular applications. The Web has now started to bring shopping into the home, both in selection of products and services and their delivery. It offers infinite choice and variety. The new jargon 'customer-centric' is acquiring real meaning. You must develop what Gates calls a 'digital nervous system' merely to keep pace with markets in which 'consumers are demanding faster service, stronger relationships and personalisation'.

Consequently, adopting the Web workstyle is not an option for management, but a necessity. For businesses of all sizes, adoption certainly means fundamental changes in the way they are organised and how they work. But organisations are in fact moving in the directions that will determine their future competitiveness - if not their survival. Are you?...

• Focusing on your 'core competencies' and outsourcing everything else to outside suppliers
• Maintaining a small central core of people, employing others as and when required
• Seeking to expand rapidly and even globally - whatever the size of the business
• Transferring work to where it is best and/or most economically done
• Refocusing all processes on the customer, and constantly mutating to meet changing markets and competition
• Intensifying your efforts to shorten cycle time and improve the speed of all processes

As for the consequences, the obvious corollaries are that secure full-time employment with companies will drop away markedly and less secure, part-time, freelance employment will rise. Established companies will have to counter increasing threats from many new competitors, with size and geographical spread no longer the defensive bastions that they were in the past. Specialisation will increase markedly as the key suppliers of 'outsourcing' concentrate and coalesce. Prices will fall as processes become faster and cheaper.

ELIMINATING TIME
As Gates observes, 'Almost all the time involved in producing an item is in the coordination of the work, not in the actual production... Good information systems can remove most of that waiting time... The speed of delivery and the interaction with the Internet effectively shift products into services'. It follows that the Internet turns each and every product company round by 180 degrees. The corporate cultures and infrastructures must 'support fast research, analysis, collaboration and execution' - which currently is far from reality. A huge gap yawns.

The gain from closing the gap should far outweigh the pain. A business loses massive advantages by not moving into the Internet mode, in which 'information about production systems, product problems, customer crises and opportunities, sales shortfalls and other important business news gets through the organisation in a matter of minutes instead of days'. The 'right people', too, are 'working on the issues within hours'. Gates regards this restructuring as 'more fundamental than any other change since mass production'.

One immediate question springs to mind, though. How far does Microsoft practise what Gates preaches? Although Microsoft has won such enormous prizes, making its boss the richest man in history, the company has had some conspicuous failures: technical ones like the persistent clumsiness of MS/DOS, problems with the early versions of Windows, and the first-time-round flop of Windows NT; and marketing misfires with several ambitious application products, etc. Then there's the whole Internet episode, which shows a near-fatal failure of vision followed by inadvisable use of strong-arm tactics against Netscape.

Surely these faults shouldn't occur in a company that hires the best and best-trained brains, creates an environment in which they can produce their best work, and builds a digital nervous system? After all, that system is supposed to build all the knowledge that has been created into the fabric and operations of the business - from where it can be shared and transmitted.

LEARNING DISCIPLINES
Hiring the best brains is not enough. How they are deployed and organised is decisive in the effectiveness of their output. That's supposedly a function of the 'learning organisation' with its five 'learning disciplines', as identified by Peter Senge, a professor at MIT. These are described as the basis of 'learning organisation work':

• Personal mastery. Do your people develop their personal capacity to meet their own objectives in an organisation which encourages that personal effort?
• Mental models. Does the company develop and share the right 'mind-set' to guide actions and decisions?
• Shared vision. Are all members of the organisation committed to its aims and its ways of achieving them?
• Systems thinking. Do you act on the understanding that actions and decisions cannot be isolated, but will have ramifications throughout the organisation?
• Team learning. Do you exploit the fact that group thinking power is greater than the sum of its individual contributors?

Gates himself is clear that high individual intelligence is not enough today. A company also needs a high corporate IQ, which does not mean 'simply having a lot of smart people at your company - although it helps to start with smart people'. The corporate IQ hinges on the facility to share information widely and to enable people 'to build on each other's ideas'. This is partly a matter of storing the past (as above), partly of exchanging current knowledge. As individuals learn, their new knowledge adds to the corporate store.

What matters most is quality, not quantity; how effectively that store is mobilised by collaborative working. 'The ultimate goal is to have a team develop the best ideas from throughout an organisation and then act with the same unity of purpose and focus that a single, well-motivated person would bring to bear on a situation'. That way, the super-smart, articulate person (for which read the Bill Gates archetype) becomes the organisation writ large. The boss encourages collaboration and knowledge-sharing, using not just exhortation but reward as the encouragement.

All this is a very tall order. It isn't surprising that Microsoft falls short of its boss's own prescription. The approved cases which Gates unfolds inadvertently indicate the main problem. Systems and knowledge are not ends in themselves. How are they used? He waxes eloquent about a detailed study that involved masses of 'drilling down' through Microsoft's data, a couple of months' work for several people, involvement of his own No.2 - all to answer one question. Where should the company concentrate its promotion efforts for small to medium-sized US businesses?

That considerable effort was needed, believe it or not, just to prove that the promotions would be most effective and profitable in cities where Microsoft's previous activity had been zero. The answer is so blindingly obvious that it makes you wonder how much wasteful effort is created, rather than eliminated, by the 'digital nervous system'. Similar thoughts arise when you read about 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'.

That sounds very unconvincing after a Christmas season in which M&S pitched its demand forecasts far too high. Subsequently, it was widely criticised - for failing to meet customer preferences, of course. Gates also praises Boeing's use of IT. But its systems didn't prevent Boeing from taking on far more 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's slamming the stable door after the horse (and the boss of airliner production) have bolted.

CONSTANT FLUX
What's the answer? It cannot be to reject the digital revolution. Gates is wrong when he says: 'Every company can choose whether to lead or follow the emerging digital trends'. The option must have disappeared in the Age of the Internet, which has helped to create an environment of chaotic change. The wired world is a world in constant flux, in which all markets will be deeply affected by many-sided transformation. Gates is on much stronger ground when he puts the choice differently and succinctly: 'it's evolve rapidly or die'.

That would be an intimidating formula even if no technological problems existed. In fact, there are many difficulties, starting with the slow access and unreliable performance of the Internet. One of the wonders of the digital world, though, is that the problem is also the solution. As soon as a hitch appears, new ambitious entrepreneurs start beavering away to remove the obstacle, creating new technology and new fortunes in the process. Gates is right to claim that 'IT is both forcing companies to react to change and giving them the tools by which to stay ahead of it'.

Reaction begins by getting the company wired up, so that everybody, for a start, can communicate by e-mail. That acts almost like an organisation structure at Microsoft, helping to operate a system so flat that anybody can e-mail Gates himself. I've been astonished in the past year to find many major companies that have no internal e-mail. Its absence has been visibly costing money - for example, £150,000 wasted by a company on faxing weekly crop reports from Africa. A simple e-mail application was far superior in cost and performance.

Set up specific digital projects which, like that, are an integral part of the work itself, and which have an immediate and measurable pay-off. The management of data, documents, and projects themselves can all be readily and effectively improved in any business in straightforward fashion in four areas: (1) getting and using better information for planning (2) raising standards and levels of customer service (3) providing and managing people's training programme (4) achieving collaboration over any distance between people working on the same project.

What excites Gates more, however, is creating a 'collaborative culture, reinforced by information flow [which] makes it possible for smart people all over a company to be in touch with another'. Here the technology helps to stimulate and energise the workplace. That happens as a 'critical mass of high-IQ people', working in concert, share the vital experience that comes when 'the energy level shoots way up'. Gates believes that cross-stimulation breeds new ideas, raises the contribution levels of the less experienced, and gets the whole company working 'smarter'.

That will not happen by itself. What's now called knowledge management is both a means and an end. Every time an internal Microsoft consultant finishes an assignment, he or she is required to send technology solutions to a central Web location called InSite. But digital technology is not the whole answer by any means. Hands-on management is required to 'evangelise', recognise, reward and review the use of information. Gates himself regularly reviews customer information provided by the sales forces. He regards review by superiors as possibly 'the biggest incentive... to keep our customer base up to date'.

INTELLECTUAL CAPITAL
That's part of running a knowledge company and refreshing its intellectual capital. The argument that this capital is the only kind that counts has become a cliche. Behind the cliche, however, lies what Thomas A. Stewart, in his book Intellectual Capital, has described as 'the end of management as we know it'. Management must be changed by the need to manage better the three varieties of intellectual capital: human (individual powers and resources): structural (accumulated knowledge and know-how of the organisation): customer knowledge (which in Stewart's view is 'probably... the worst managed of all intangible assets').

Developing, investing in and deploying all this intellectual capital - i.e., knowledge management - is far from simple in execution, if you agree with Gates's definition of the ultimate object of the exercise. 'Your aim should be to enhance the way people work together, share ideas, sometimes wrangle, and build on one another's ideas - and then act in concert for a common purpose'. That sounds like a managerial Utopia, something seen in only rare and fleeting circumstances, the heartfelt and generally frustrated desire of every chief executive, and every manager.

You'll never begin to satisfy that desire if, like most managers, you are still unfamiliar with tools like databases, e-mail and workflow applications, electronic files and Web technology. But these are simplifying and converging, and as they draw together, the nearer Utopian management will come to realisation. And that digital goal is one which all organisations must seek.