by Frances Carirncross, Profile Books, 2002.
Ten rules for leading survival in the communications revolution. Among them: managing knowledge, decision making, customer partnership, talent finding, collaborative effort, standard maintaining, openness.
(Reviewed by Kevin Barham in June 2002)
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Frances Cairncross, Management Editor of The Economist, here looks at how the internet will alter the role of management and the structure of the organisation. She argues that we have grossly underestimated the power of the internet to change the way companies behave. We are entering a volatile period of fundamental organisational change from which will emerge a new type of company - one that will require a new set of leadership and management skills to run it.
No manager, says Cairncross, should be deceived by the 2000-2001 collapse of high technology companies and stocks into thinking that the influence of technological change has been exaggerated. Its profitability was grossly oversold but not its significance. That will take time fully to emerge, but it may well be the single most profound force shaping the company of the future. Cairncross presents 'Ten Rules for Survival' to help managers steer through the immediate period of technological and economic disruption, exploiting the potential of the new without sacrificing what mattered in the old:
A company is the sum of what its people understand and know how to do well. Value lies increasingly in creative ideas and knowledge. But ideas have value only if people share and develop them in ways that benefit the bottom line. Knowledge is useful only if people can find what they need to know. Getting intelligent people to share what is in their heads is vital, and takes more than mere money or clever software. Ideas must flow sideways through a company and from the bottom up, not merely top down. And knowledge is worth storing only if senior staff set careful rules to filter and structure it. What goes into a database determines the value of what comes out. The communications revolution presents new opportunities for managing intangibles but real benefits will flow only when the centre first provides order and structure and then devolves access throughout the organisation. So setting central rules and standards is key to good knowledge management.
Good judgement will remain a key skill. Managers constantly bombarded with new information require strong nerves if they are to build in the data that matters and set aside the rest. Because production cycles are shorter, companies will often need to do things in parallel that they would once have done sequentially, thereby speeding up the decision flow. Managers must accept that it is sometimes better to be roughly right than exactly wrong. Big-bang decisions are generally best avoided or implemented in small incremental moves that leave room for flexibility and for altering course if circumstances change. Accountability will grow more widespread and deeper - a decision must be not just financially right, but ethically defensible too. Shareholders and other stakeholders have new ways to monitor corporate behaviour and to urge change.
The internet also speeds up the dissemination and adoption of new techniques. It becomes easier to design new products. Wider competition, itself partly the effect of the internet, increases the pressure to innovate. The internet allows companies to connect teams of designers or engineers in different parts of the world, enabling them to hand off work to each other and use time zones to accelerate research and testing. It also allows companies to learn from what others in their industry are doing, even on the other side of the world.
Up to now, companies have generally concentrated on producing more stuff more cheaply, the big benefit of mass production. But as customers grow richer, and their immediate wants are sated, they may well not want more and more, for less and less. They may want a customised product, different from anything owned by anybody else.
Customers matter but some matter more than others. Acquiring new customers often costs more than making extra sales to existing ones. So companies must build loyalty and trust with reliability and good service. Given the sheer amount of product information reaching customers, memorable brands will grow more important. Companies will not just widen their reach by finding new markets, but will also seek to deepen existing existing relationships. They will have more information than ever before about customers, and must use this to offer their most profitable customers special deals and to make them feel part of an elite club. Some companies will even seek to get rid of unprofitable customers by charging them higher rates than others and restricting the services they can access.
Talent has grown more valuable as new communications have raised the potential return on a good idea. Like its customers, some of a company's people matter more than others. That does not apply only to people at the top: intelligence, creativity, and teamwork are the essential inputs of most businesses. Managing talent is about capturing innovative ideas from middle managers and those further down the line. At every level, managers must identify where most value lies. In some cases, a few stars will encapsulate much of a company's value; in others, teams of employees will matter more. Some companies will want to rent the talents of 'free agents'; others, to employ directly their best brains. Each case will need a different human-resources approach; each will require new ways to measure performance, imaginative ways to reward it, not all of them financial (though managers will have to be prepared to pay a few key superstars more than they earn themselves.)
The relationship between employer and employee is undergoing a fundamental transformation. Jobs have become more modular; fewer people expect to spend a lifetime working for the same employer; more work on contract or freelance. As a result, managers need more complex and sophisticated skills to retain the best staff. The best, however, are increasingly aware of their market value and will extract it ruthlessly from an employer or move on. Managers must strike a delicate balance between paying enough to attract and retain talent, and offering such lavish rewards that too little value goes to the owners of the business and its other employees.
Training is no longer an optional extra but a necessity to keep up with the pack. However, the speed at which companies now introduce new products and processes gives employees less and less time to master more and more information. Internet technologies create radical new opportunities for training programmes, including the possibility to provide training at any time and in any place. This may even mean learning from a cell phone or a personal digital assistant in sessions as short as a few minutes at a time. Ultimately, one of the biggest benefits of electronically delivered training is that it can be tailored precisely to the needs of the individual. It may change the thinking behind many concepts of training. For example, given the availability of online help, dedicating time to make people retain things may be a waste of time - it may be speedier to teach people how to use online help. 'Just-in-time' learning will teach people 'what they need to know, when they need to know it'.
Inside companies, teams will have new opportunities to work together. Companies will collaborate more - in alliances that allow them to outsource production or to spread risk or to enter new markets. Both will require lateral links, not hierarchies, and a new managerial style. Teams may be separated by time zone or by geographic distance and increasingly will work for different employers. Effective collaboration between teams and between companies calls for similar qualities: trust and shared understanding, rather than the top-down, command and-control approach of hierarchical structures. Successful collaboration will also require excellent communication, and incentives that reward sharing information and working for common goals.
As well as changing a company's relations with its customers and with the people it employs, internet technologies alter purchasing and supplier relationships. As companies move procurement online, they achieve transparency and efficiency, cutting costs and improving control. Companies outsource peripheral activities, keeping in-house what they do best. They build deeper links with fewer suppliers, replacing the traditional supply chain with something more like an 'ecosystem': a network of suppliers, all connected with each other as well as with their main customer.
In an age of abundance of physical and financial capital, human capital will be the rich world's limiting resource. The corporate structures that will do best will be the ones that best suit the brightest workers. As costs of handling information in a company decline, so new opportunities open up for redefining corporate shape. No longer is a company a rigidly designed machine with parts that fit together in one way only. As development and production grow more modular and less sequential, with more activities conducted simultaneously and collaborative, the notion of a web becomes more useful. Corporate structure will grow more diffuse and fluid, more kaleidoscopic in design. The patterns will shift, and the component parts, sometimes packed tightly together, will at other times be pried apart, like fabric held together with strips of Velcro.
Franchises will be more important and alliances and partnerships will flourish as companies concentrate on doing what they best understand. New entrants - 'plug-and-play' companies, that pull together services, provided by other firms - will spring up more quickly and increase competitive pressures. We might think of a company as a Lego kit. Managers now have potentially many more different types of blocks to play with. The challenge is to think creatively of new ways to put the blocks together rather than assembling them in the ways they have always done in the past. Managers will have to think through from scratch which activities should be kept in-house and which outsourced. A general rule is that a company should keep those activities it does not merely as well as, but better than, its competitors.
In addition, the people whose skills a company draws upon will be more loosely knitted into the corporation itself. Many will be self-employed or will work on contract on a series of projects rather than in a particular department. Managers must use new communications to create communities to which such 'distributed' workers can feel allegiance.
Given the pace of change, bosses need more than ever to be able to communicate persuasively through many channels, with their (often dispersed) staff, their investors and the outside world. They must face outward as well as inward, constantly mindful of the greater visibility that the internet allows. They must also listen: The most valuable communications will frequently be bottom-up as the people nearest to the customer and the product now have new tools for explaining what they see. They will use these, however, only if they feel the message gets through. More communications will also travel sideways, peer-to-peer, as teams share ideas in more depth than ever before and joint ventures work more closely together. Part of the skill of management will be to infuse a sense of corporate community. Here, the internet gives companies new tools to communicate internally to reinforce strategic messages and build employee commitment. Creating a strong sense of belonging may answer one conundrum of the information age: how to persuade somebody with a bright idea to let the corporation exploit it for the benefit of shareholders.
Ironically, internet technologies, which are tools of freedom and decentralisation, also call for discipline, protocols, and standard processes. Only by setting standards and insisting that everyone abide by them will companies reap their potential savings. Companies need to insist on common practices in areas such as purchasing and information technology in order to harvest real productivity gains. As a result, some aspects of centralisation will increase: a key task of top managers will be to provide structures and standards, and to insist that they are observed. Standards are likely to pervade a company only if they have the unequivocal backing of its leaders. After a company's senior managers set standards, they must react quickly to any breaches.
Once standards have been set, then openness and freedom should reign. Discipline and openness are two sides of the same coin: centralisation of standards makes possible decentralisation of decision making. In addition, internet technologies increase the need for a culture of openness, to foster the sharing of knowledge and effective collaboration. Companies will allow their suppliers and customers 'inside the machine' by giving them extraordinary access to their databases and inner workings in order to integrate their operations and to make collaboration effective. This requires trust and calls for reliable ways to avoid conflicts of interest and issues of privacy.
Without the right organisational structure, culture, and staff, a company will not fully benefit from even the most sophisticated technology. So the key to success lies much less in technical know-how than in excellent leadership to push through and build upon organisational change. At some points in a company's life, it will need a hero-leader who can rally staff to push through the trauma of disruptive change. At other times, the right style will be the manager-as-coach, a selfless talent scout who specialises in assembling and motivating great teams. Always, the people at the top will set the tone in a firm. Their skills will determine whether it is a good company to work in and do business with.
Cairncross is careful to present a balanced view of the impact of the internet. Despite its many benefits, she allows, the Net will bring considerable disruption and costs for individuals. The new technologies potentially raise managers' productivity by allowing them to work when they would have been doing something else, such as travelling to and from the office or a meeting. The corollary is that they are never out of reach. Companies will expect managers to be reachable in the evenings, on weekends, and on vacation. In addition, many more decisions must be made out in the open. Internet technologies expose management as never before. Employees can more easily see what managers are saying to each other and to different audiences. They can also more easily swap information with each other and find common interests. Customers, too, can quickly discover corporate information faster than ever before. 'Constantly in reach, incessantly connected, relentlessly under the spotlight, managers must make decisions in minutes or hours rather than days or weeks.' A manager's lot may not be a totally happy one in the New Economy.