Most companies today are still set up and organised for an age that is gone. Many are trying to change - trends regularly sweep the management world. But the results are often disappointing.
There is a widespread feeling that movements such as business process re-engineering haven't improved business performance as was expected.
So what happens next and where can we turn for guidance?
Dr James Martin is chairman of IT and management consultancy James Martin & Co. He is a frequent lecturer and the author of more than 80 books, many of them bestsellers. Martin is one of few people to have won recognition both as a management thinker and as a technology guru.
In Martin's view, the future lies with companies that take full advantage of the Internet revolution and the possibilities opened up by today's network-centric computing. In his latest book, Cybercorp - The New Business Revolution, he refers to such companies as cybernetic corporations - cybercorps for short. They are global in scope, have a flexible structure and are quick to adapt to new market conditions. With technology, they can get to know their customers better and can relate to suppliers and competitors more effectively.
Indeed, technology allows companies to outsource many activities that were previously done in-house, while still retaining control. This leaves the company free to concentrate on its core competencies, shifting the emphasis to developing expertise in chosen key areas.
But there are dangers too in the world of the cybercorp. Martin sees competition becoming much more intense. He predicts that fast new interlopers will enter established markets and skim off the most profitable business.
There's also considerable upheaval ahead for many employees, as operations are outsourced and people who can't learn the necessary skills are shed.
Q Does the world need yet another management book?
A I think it does, because most management books around at the moment are nonsense. My book makes a very detailed and important statement about how corporations are changing. If companies don't change, they probably won't survive.
Q But almost all management books begin by terrifying readers.
A: Yes, and that's a big flaw. These are rapidly-changing times. Most corporations are still run by the seat-of-the-pants mentality, and there's not much clear definition of processes.
What's more, most business re-engineering has failed.
Q Is your notion of the 'value stream' the same as 'process'?
A No. A value stream consists of a whole set of processes: for example, all the way from a salesperson getting a lead, the sale being closed, the order being delivered, to the payment being processed.
Q So, how do you draw the boundaries of a particular value stream?
A You have to identify the start, the end and everything that happens in between. In similar businesses the value streams are essentially the same. All life-insurance companies, for example, have very similar value streams.
Q Does this mean that companies should do it themselves, or should they outsource?
A If a company knows how to do the job, it should do it itself. If it doesn't know what it is doing, it should get someone who does. By the time you've finished re-inventing value streams you are talking about a fairly major cultural change, which isn't likely to come from inside a company. After all, monks don't dissolve monasteries.
Q But then what does the business actually consist of?
A: That's a critical question - what is your business or what should it be? Most chief executives don't think through their business strategy, because they don't know enough about technology. Technology is really changing the core competencies of a business. And many chief executives aren't aware of the options open to them.
Q One of the ideas in the book is that the future corporation will be able to respond very quickly.
A: Companies need to be able to change quickly because there is more competition. Take life-insurance companies, for example. They will be up against Richard Branson's Virgin, Marks & Spencer and all sorts of strange newcomers.
Almost every finance organisation I have spoken to says it's getting involved in the life insurance business. This is because they think the big old insurance companies have become like the Government - huge bureaucracies that can't change fast. These days, you can set up insurance companies that only insure good risks. So, with life insurance, you offer low premiums for low risk.
In other words, you skim off the cream of business. The whole networked world facilitates this, and we're going to see that in many businesses.
Traditional insurance companies could be attacked by very energetic cream skimmers, and lose profit.
So there are many aspects of the Cybercorp revolution that are dangerous.
Competition could become so efficient in the electronic age that it may push margins down to zero as customers are able to search for the lowest prices, anywhere in the world. So the critical question should be "what types of business are brutal in a world of electronic-aided competition?"
Q What is the most important trend in computing infrastructure?
A Today, we can build truly open systems which, until recently, was difficult. This is because everyone is building applications that work on the Internet. The Internet has hijacked the standards process, so now there are software products that really work together, and hardware and languages. Suddenly, you can build networks which work anywhere in the world. And you can build links to your competitors, suppliers or customers.
Q Does that change the picture only for the computer business?
A: It changes it for many executives, as well. Today, we can do things that were either impossible or extremely difficult to do a few years ago.
So companies have new opportunities. It also means they will be attacked in new ways - by people who are probably using the technology better.
Q If a company is to take advantage of technology, does it need all those computerised processes directly under its control?
A Not necessarily - you can outsource, but a corporation must hold on to certain critical things, core competencies, crown jewels, and do those itself.
Q Don't these change from year to year?
A I don't think core competencies change that fast. The Japanese have probably handled core competencies better than any other country. Companies such as Canon and Sony think there are certain things they must excel at. They'll do everything they can to get hold of the right people and the technology to help them excel in certain core competencies. And then products change incredibly fast, but the core competencies remain the same.
Q Surely, if a company is structured so that it does only the core competencies and other things are outsourced, it cannot be that fast.
A Well, it can. There are numerous examples in manufacturing where components are outsourced. The key is to make sure that component manufacturers use the same CAD tools as the main manufacturers. In this way, you can make changes very quickly.
Q But if you outsource, surely changing the situation quickly can be tricky because you are legally committed to agreements and contracts?
A The architecture of a corporation is difficult to change. But you have to decide what business you want to be in. It could be perfectly valid to decide that you won't actually have a factory, because you will outsource the manufacturing. That's one way to make money. Another way is to decide that you can make goods much better than any other company.
Intel, for example, is one of the most profitable companies in the world, because it designs and manufactures products at such an intellect-intensive level that no-one can match it.
Q There's a concept that setting up a company from scratch, with no history and no legacy hangovers of people or systems, offers a key advantage.
A Yes - so long as it's got competent people who know what they are doing. A lot of companies start up with people who have no history - but they just don't have the knowledge that is really needed.
Q Does this mean that, rather than undergo a costly and time-consuming business process re-engineering exercise, you should launch small subsidiaries, little fighting start ups?
A: That's probably too blunt. I think it is important to carry out a transformation audit. Sometimes, it is sensible to say "don't re-invent the value stream, just change this process". It's often sensible to say "don't change things in a big way, just practice ISO 9000 or TQM (total quality management)". Other times, you want to say "totally re-invent the value stream". But don't re-invent every value stream in the business.
There's one or maybe two of them which are utterly critical. You should leave the others alone for the time being.
Q If you decide to do something about the value stream, is it best to start it up as a new unit altogether?
A That is what IBM did at the beginning of the 1980s when it wanted to get into the PC business. The company got lots of standards manuals on how to design and create computers. But IBM realised that if it followed them it couldn't possibly come up with a PC within 12 months. So it formed a new unit with a clear goal, and the company said "that goal cannot be achieved if you follow the IBM principles, so you are on your own. But we absolutely have to get the world's best personal computer by a certain time". So IBM was really setting up a Cybercorp which was unaffected by the rest of IBM.
Q Is that one of the ways in which a large slumbering corporation can adapt?
A Absolutely. I have visited some corporations in the US which operate like a government - huge and slow-moving. At lunch, they have a vast quantity of people who sit around in the dining room and gossip for 90 minutes.
But in Europe, the same company has a new unit with new people and new rules. It is now the new kid on the block; there are no 90-minute lunches because the company wants to move aggressively.
Q So you can use physical distance to help establish a different cultural attitude?
A Yes. In fact, something which doesn't usually work is setting up a new-culture cybercorp within the old building, because the existing people in the building will attack it.
Q What barriers can you put in the way of new competition?
A You can make the game so intellect-intensive that the cheap-labour companies can't copy you. Which is exactly what Intel has done.
Q But surely your staff could defect and set up their own fast-moving start-up companies?
A: This an increasing concern in the cybercorp world, and managers need to find out how they can keep their key staff. The best way is to give them stock options or some sort of financial incentive. Ten years ago, only a few people at the top of a company were given perks such as stocks.
But the evolving business world is more democratic, at least for those people who are good at their jobs. You don't really care about the others.
Q The kind of company structure evolving seems to be a compact cybercorp, surrounded by a flotilla of outsourcers - including sub-contractors who are perhaps former employees.
A That's right - lots of little sub-contractors with whom you have dynamic relationships. Sometimes, you need to design outsourcing so that, in a fast-changing market, you can quickly get rid of your outsourcers. So we are seeing another word - agile - coming to the fore, which is the capability to assemble and disassemble virtual operations dynamically.
Q Does this mean you have a chain of suppliers to pick and choose from, and you can change the terms and conditions, and so on?
A: Yes. And it very often means computer-to-computer relationships with people who are excellent at something which you'd like to use. A grand-scale example of this is Boeing's building of the 777 aircraft. The company had more than 200 suppliers all over the world, connected by CAD. They were able to do the most incredibly complex designs and fit them together, in some cases with virtual reality, before they actually built anything.
Q How do you encourage people who aren't in your company, but who are part of the virtual operation, to care?
A You need to negotiate contracts which include various rewards and penalties. If suppliers don't perform well, they should understand that they will lose business. Toyota, for example, sets objectives for its suppliers, such as delivering goods on time, and includes those in their contracts.
Q Can't you simplify all that? It seems that you will have a lot of checking and regulation and lawyers involved.
A Policing costs fall if you can do it automatically. So, with complex outsourcing, automatic computerised monitoring of performance measures is a good idea.
Q For an employee, how will being part of a cybercorp be different from what they are familiar with?
A Most jobs have been comfortable and boring in the past. We now have a world where people no longer have the security of a job for life. You are there if the customers want you. This means there is pressure on employees to justify their salary by proving that they are good at their jobs. Another change is that they need to learn quickly - and they could be learning on their own or as part of a team. In some situations you really want to build very high-performance teams. That's a big change for the employed person.
Q In some ways perhaps the situation is worse for a lot more people.
In many businesses, the professionalism of defining tasks accurately has been broken down into almost shop-floor-type operations.
A Yes, but on the other hand, when you look at a value stream, you can see that a particular department often does one thing, and then another department does something else, and so on. Many companies want to get rid of that completely and do the whole thing end-to-end with one team.
So you want that one team to have far more skills than it had before.
Most people in high-performance teams say they are having fun. So it's an enjoyable way of working, but very different from the bureaucratic jobs that characterised the 1970s.
Q How long do you think this new model of business will last?
A It's a fundamental change, like the coming of the industrial revolution.
Once you build a cybercorp like this, certain characteristics are here to stay.
Q In some ways, the people in companies are not as intelligent as they were because staff turnover in the thinking part of the company is higher than before.
A That is one reason why it is important to identify core competencies and keep people in the company for the long term. You don't want intelligent people, who should be building up the highest level of excellence, to leave.
Q How do governments fit in to all this?
A Most governments are organised and structured to work in an age that is long gone. There is a massive need to redesign the basic operations of governments, so that they are like cybercorp operations. If you think of government in terms of value streams, you find that most are ridiculously bureaucratic; you'd never dream of designing them that way if you started from scratch today.
Q How can governments redesign themselves to be more like cybercorps?
A With most operations in government we need to ask who the customers are, what do the customers want, and are we really giving them what they want today? We must also ask how we can measure what they want and whether we will be able to do it better. Usually, the answer is that you can do it much better than it is being done today. Governments need to tighten up and apply some common sense.
Q I believe you're associated with a company that is involved in year 2000-compliance.
A It's called HCL James Martin. It's a joint venture with HCL in India, and has about 900 programmers. It is becoming clear, at least in the US, that there is so much work involved in sorting out the year 2000 date change problem, that there won't be enough programmers to do it. So I think off-shore operations are inevitable.
Q Is there a lot more mileage in integrating what were Third-World economies into white-collar processes?
A From business people's perspective, they would like to do what the customers want in the most cost-effective way. If the business person is not addressing any social concerns, if he is just looking at it as a business and is focused on profit, it makes sense to use cheap labour wherever it's available, whether it is blue-collar labour or intellectual labour.
Q In your book, you use an ecosystem analogy. How does that work?
A: It's a very good analogy. Business is like an ecosystem where many complex components relate to each other. Some players, such as Microsoft, have manipulated themselves into a totally dominant position in their ecosystem. Others have manoeuvred themselves into a niche position in an ecosystem.
Q Within the ecosystem analogy, you say that it is sometimes in the interest of the predator to help the companies it preys on, to cultivate growth.
A Yes - rather like Microsoft. There are many examples of that in business.
Q Are you against the idea of guaranteeing jobs to people in companies while the process of change is taking place?
A Not necessarily. There are lots of examples, certainly in the US, of companies that have become completely paranoid. And paranoid companies are inefficient. Everybody is frightened of what will happen to them.
All sorts of malicious gossip circulates, and everybody concentrates on that rather than focusing on doing a good job. So there may be circumstances where it is appropriate to say: "Look, we have to go through incredible changes. We won't fire you, but you have to learn new things." That can be a good way to make the change.
Q But you'd do it for a fixed period only?
A Yes. There is widespread firing of staff these days. Many companies make statements along the lines of "We're going to get rid of 5,000 people, but we're going to hire 6,000 people, so the net is beneficial." But what they really mean is they're firing the dumb ones to hire the intelligent ones.
Q But presumably the 'dumb' ones become a drain on the corporation in a different way, through the tax system. So you achieve nothing overall.
A There's a limit to how much you can raise taxation. I think most European countries are now close to that limit. We are building a society where some people are empowered by complexity and some are victims of it.
But, there are many different solutions. For example, you can consciously minimise complexity with computers by getting very good human interfaces, and with careful training.
It is important to make people accept that learning goes on throughout life; tell them they can learn at home, and provide them with the tools to do it. It is alarming that there is so little learning going on in the UK today. The heated debates about primary and secondary school education is part of it. But all through society people are not learning enough, given that this change is inevitable.
James Martin's latest book is Cybercorp - The New Business Revolution.
It is the one mainly referred to here.
Published by the American Management Association, it is distributed in the UK by McGraw-Hill, ISBN 0-8144-0351-4, price #18.95.
Martin's earlier book, The Great Transition, further covers the key notion of value streams. It is also available from McGraw-Hill, ISBN 0-8144-0315-8, price #24.50.
For another view on how technology fits into the business picture, see the article on Paul Strassmann on page 82. For more on outsourcing, including what UK IT managers think about it, see the special feature on page 40 of this issue.
James Martin will be writing a regular column for Business Computer World, starting in the Spring.
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