IT strategy, business

'All companies are in the IT business today. The difference lies in how well or badly they use the technology'. This statement by Percy Barnevik, then the chief executive of ABB, Europe's most admired company, should be a tailpiece to every vision and mission statement. It was made before cyberspace changed everything, but the enormous pace of Internet growth (over fivefold between January 1990 and end-1998) has given Barnevik's text still greater urgency.

The Internet and all it stands for imposes a new imperative on speed of thought and action. All managements now face an intensified, common challenge, easily stated, less easily understood. The business conditions they have known and mostly loved have become as obsolete as the one-track assembly line, the radio valve, or the old-style, pre-container docks - or 'business process reenginerering'.

Strategic thinking has grown big as BPR has faded and operational effectiveness (the target of reengineering) has been demoted. But what is strategy for? And what is information technology's place in achieving those ends? Managers are much more receptive today to the concept of IT as a strategic tool. The concept, though, is like the computer itself: only as good as its application. Even in the US, as recently as 1996, a startling 85% of large companies did not use state-of-the-art IT. Two years later, 95% of directors at their British equivalents admitted to being less than well-informed about the Internet.

Yet the newest and not-so-new tools open up rich and exciting horizons. For instance, any sensible customer or product strategy depends on accurate knowledge of costs, realised prices and price comparisons. In most companies, the data is available somewhere or other in some form or other. But few organisations can bring all the items together rapidly in order to make the key decisions: which customers to drop, which to cosset, which contracts to renegotiate, which products to phase out, which to push, etc.

Applied right across the market, and right across the product lines, information collected and distributed via a 'data warehouse' can help to transform the entire business. It will, for sure, lead to lower costs. But these savings aren't a strategic end in themselves: warehousing provides the springboard for the most valuable form of strategy, which aims at achieving organic growth. That objective has risen in importance as the long-term value of cost-cutting alone has been tried and found wanting.

That conclusion - that you can't grow by shrinking - is straight, unadorned common sense which needs no jargon. There's one British company, for instance, which shies away from the word 'strategy' (and is even less keen on 'vision' or 'mission'): but it has relentlessly pursued the lowest cost position in its industry - using technology to the full - so that it can pick off and exploit the most attractive sectors of the market, outgrowing competitors in sales and profits alike. That's upsizing, which truly is a strategy worth having: downsizing isn't.

The winning formula (in the marketplace and in the market for business ideas) is to expand the customer base and raise revenue per customer while lowering the cost of capital and other inputs. The first half of the equation counts for most, by far. In the words of a professor at Harvard, Jeffrey Rayport: 'The companies that are leading have cost-compression on autopilot. The real potential is to deepen and augment customer relationships.' That poses a real challenge to IT directors: because they may get left behind in the strategic rush.

Rayport was quoted in a Business Week article which concluded that, among the minority of new technology leaders, 'the chief financial officer, rather than the chief information officer, has typically emerged as the central player.' Thus at Johnson & Johnson, the top finance man was the force behind a data warehouse named Darwin, 'a sophisticated system that enables managers in some 50 countries ...to slice, dice and analyse masses of information...on everything from accounts receivable to inventories.' The health products company has also consolidated all its payroll functions into a single site, saving nearly four-fifths of the administrative costs.

Making such economies, as noted, is the easier bit - in decision if not in execution. Here, the IT directors are on comfortable ground: though the ground will be much cosier if they, rather than their internal customers, take the initiative in demanding and achieving major economies through such sweeping reforms. Far greater effort will be required for IT directors to seize the strategic chances which lie in the fact, to quote BW, that IT 'is fostering a sea-change in the way companies assess their growth prospects.'

EXPLOITING THE SEA-CHANGE
To exploit the sea-change, IT directors have to swallow any pride and possessiveness and become allies of other strategically placed managers - including the financial supremos. One of the greatest obstacles to strategic breakthroughs is the Not Invented Here factor: for instance, some IT directors, deeply infected with NIH, will resist outsourcing to the death, seeing it as a threat to their own organisations, even if the consequences retard the progress of the company as a whole.

In the worst-case (and not uncommon) scenario, this could result in adopting a new IT strategy, but seeing it fail. Obstinacy will open the door for other managers to take charge, not only of the largest strategic opportunities, but of specific IT developments. Non-IT managers are going to demand information as a tool for creating and sustaining powerful, winning strategies. Boards won't want to know much about 'massively parallel servers, RBDMS, data extraction & transformation tools, metadata tools, OLAP, data access & query tools, data mining', etc.: but they will want the full strategic benefits of this warehousing technology.

The revolutionary potential of new technology faces every business with the same challenge that Japanese methods once posed to Western factories. At the same time, the imperatives of business have changed in a way that is inimical to traditional organisation. The two forces are working hand-in-hand. As the telephone did, the new hardware and software make it possible, and in most respects essential, to change to new methods of working.

Before the telephone, communication either took place through exchanges of paper or face-to-face. The bullpen office (with hundreds of people packed into an open space) evolved partly for reasons of discipline, partly because more bodies could be put into smaller areas. More important, the passage of paper and the spoken word is obviously eased by the absence of barriers and the proximity of desks - just as City and Wall Street traders, in the ultra-modern, high-tech bullpens, can yell at each other across the crowded room.

For those with work of higher degree, cacophony and lack of privacy were both demeaning and counter-productive. Like the Victorian father with his study, the seniors had both dignity and high-level work to protect. So barriers (doors, walls, separate floors, even separate buildings) were erected to separate the barons from continuous direct contact with the commoners. Face-to-face discussion was still inevitable, even vital; but the walls served to ration and limit the meetings, for which special rooms were supplied (right up to the holy of holies, the usually empty, expensive boardroom).

Thus the historic office developed, and thus it has largely remained. But now electronics offers the means for instantaneous communication and information anywhere in the company or anywhere in the world. This has happened at exactly the time when group working has of necessity replaced individual decision-making. Not only did the old-fashioned cellular office evolve for the one-man mode. It also powerfully reinforced the individual method of office work by isolating the office worker - and the higher the position, the greater the isolation.

Isolation is yielding everywhere to collaboration. Managers who don't recognise the potential of such developments will be like the failed companies of a frequently painful past: locked into ways of thought and action that will never cope with a fast-changing outside world. The pace of technological advance is so frenetic that the full extent of the revolution can't be predicted. But hardware or software already exists, or lies round a near corner, that will perform any task currently done by and for management much faster, more conveniently, more accurately; and many tasks which now can't be done at all will become routine.

THE NEW BUSINESS TECHNOLOGY
The revolution is of a wholly different order of magnitude from the slow changes of the earlier twentieth century. The business technology of the past saw five major and crucial developments: the telephone and its printed allies, the telex and the ticker tape; the typewriter; the copier; the adding machine and its replacement, the electronic calculator; and the computer.

The first three represented new and vastly improved methods of conducting business as before. The post and the personal meeting were no longer the sole means of communication. Laborious and slow longhand was replaced by the sometimes amazingly fast typist. Her skills, in turn, were supplemented by the far greater speeds of the xerographic copier.

Like the phone, the typewriter and the copier, the computer, in its first use as a glorified adding machine, produced an enormous enhancement of existing processes. The new electronic technology, however, makes new processes not only possible, but inevitable. The most exciting aspect of the revolution is the impact that new technology will have on the process of management itself - as witnessed by the unglamorous example of payment systems.

Using electronic data interchange (EDI), firms have for years been able to give and take orders, and supply and pay for the goods, without any paper changing hands, without any direct human intervention, and with automatic bookkeeping for the transactions. This humdrum change is a whole New World, and like the inhabitants of Europe when the Americas opened up, nobody living and working in a business will be untouched by a revolution that still goes sweeping on.

By 1992, a quarter of all payments in the US were electronic. By 2004, with IP (Internet Protocol) technology taking over, the proportion is expected to be 58%. No wonder an American magazine writer declared that 'Over time a proportion of practically every transaction will touch the Internet'. Clearly, such technological change is imposing new realities at an accelerating speed that has no precedent. The pace varies from industry to industry. But all industries, just as Percy Barnevik said, are affected by IT, where a century's normal change processes seem to have been crammed into a couple of decades.

In their working lifetimes, managers have seen fabulous transition. They began in the relatively settled world of stand-alone mainframes and dumb terminals, served by custom-made software of limited scope. They have migrated to a world where complex choices are required among a virtually unlimited variety of processors, programs, applications, systems, desk-tops and lap-tops. The choices, moreover, must be made in the full knowledge that the choices may well be obsolescent (though still highly effective) at the moment of implementation.

LEGACY THINKING
Since IT is so pervasive, in services and manufacturing alike, change is being forced on corporations whether they like it or not. As hardware and software suppliers know, change is rarely welcomed by most managers - including those directly responsible for IT. Not only must so-called 'legacy systems' (those in which millions of dollars or pounds have been invested) be taken into account, but there is also legacy thinking. The state of the art beckons to legacy thinkers, not as an opportunity, but as a threat.

Legacy thinking opens up a dangerous gap between what IT systems can deliver, and what many users actually receive. A similar gulf yawns between the business strategies proposed by managements and the actual operational results. By closing the IT gap, however, the second one, too, can be decisively bridged. This is not a matter of exhortation and indoctrination. Implementation is the key.

Senior managers too often seek to alter thinking, when the true object should be to change behaviour. That in turn is conditioned by circumstances outside the control of the people who management supposedly wants to enlighten and empower. If they are the prisoners of obsolescent or obsolete information and communications technology, nothing they can do personally will overcome their disadvantages. You cannot, to give an example, readily integrate job opportunities and learning needs with available training if nobody, including the human resources people, has access to the Internet.

That may be the direct fault of the IT department. But the indirect blame lies higher up. The most influential area of behaviour is that of top management itself. If the chief executive and his entourage fight shy of training, IT, teamwork and shared decision-making, they can forget about riding the revolution - it won't happen. You need, not just top commitment, but top participation if the push for change is to advance beyond being a 'programme', with a beginning and an end, to become a way of corporate life. Many chief executives will accept this - 'though more in concept than in practice.'

That's the correct judgment of the IT Management Programme. Managing director Peter Sole stresses that the evolution of business from relative stability to continuous change and discontinuity 'requires a change in strategic focus and leadership style. It also implies using IT in different ways and a different role for the information systems department.' As his 'board briefing' notes, 'IS is the one department experienced in living with continuous change - both enduring it and applying it.'

That argues for making IT the spearhead of revolution, whatever strategy a management adopts. The briefing sets out four possible strategic contexts:

• production (stable products, stable processes)
• customisation (dynamic products, stable but flexible processes)
• improvement (stable products, dynamic processes)
• innovation (dynamic products, dynamic processes)

Very few firms can afford the old luxury of production orientation: more and more are being dragged towards its opposite, the fourth category, innovation. Information needs here revolve round the question, What's possible? The answers envisage a corporation which uses knowledge as a basis for new concepts and ideas; employs unstructured, intuitive data; boldly embraces assumptions and beliefs; seeks pattern recognition; and relies on systems and data integration. That's light years away from the transactional data, reports and archiving that typified the production strategy. But it's also, of course, very far from the general reality.

The right IS manager for the customisation strategy, though, is beginning to emerge: 'an infrastructure manager, information broker and IT skills broker', who 'becomes closely integrated with the business.' Those last five words hold the key to the whole process of revolution. It rests on integrating all processes and all the owners of processes. IT earns part of its sovereign importance by providing the means of integration.

Networks, group-ware, Websites, Extranets and Intranets will promote radical change, anyway. But the object of the exercise is to drive the revolution in the direction which the whole corporation wishes to reach. That demands treating the corporation truly as a whole. Top managements mostly recognise that demand. But the move from concept to practice, from lip-service to service, can't come a moment too soon.