What's Next?

What's Next?

What will the successful corporation look like in the new millennium? "What if we get past the Y2K bug and there's any business left?" muses one consultant It's a curiosity of the late 20th century that information technology -- which should have delivered significant opportunities to business to allow it to structure itself anew for the next millennium -- has, in fact, forced business into a rearguard action to protect legacy systems from a problem of the computer industry's own making. Getting a grip on the future has been back-burnered by IS departments as they grapple with the past. But as the next millennium looms, senior executives are moving beyond the Y2K panic and pondering what their corporations would look like in the future? How can business best prepare itself for a global online future? Is this, in fact, where future success lies? The technology and telecommunications revolution, and particularly the Internet, has underpinned much of their thinking. Fred Balboni, Asia Pacific leader for information technology and systems integration practice with Pricewaterhouse-Coopers, claims that there is a huge pent-up demand for communications-rich, customer-centric applications. But presently companies are "in a holding pattern because the IT budget is being held up by Y2K". Within a few months, though, he expects a sudden surge -- and a radical shift -- in the expectations chief executive officers place on chief information officers.

"Over the last 10 years there has been an evolution. At the beginning of the decade business strategy drove IT strategy and technology. The exact opposite is happening now, and henceforth we will see a whole new generation of businesses," Balboni says. He predicts these new businesses will be predicated on electronic commerce. He cites a survey PricewaterhouseCoopers conducted of CEOs at the World Economic Forum held in Davos Switzerland earlier this year.

He says that 50 per cent of attendees saw their businesses under threat from non traditional competitors operating electronically, and 40 per cent said that more than 10 per cent of their own revenues were now coming from e-commerce.

Jennifer Zanich, principal of New Media Concepts, cautions, however, that while the Internet offers significant opportunities, it is no silver bullet. "People are parking money in it -- but no one's making money," she warns. Zanich believes that ultimately the Internet will be seen as another tool in corporate kit bags. Such caution can be tough to sell to executive management excited by the prospect of the 1.7 million active Web users in Australia, and the other 1.5 million people with e-mail access from work. And this segment is a rich community -- the segment of the population with incomes below $30,000 is sparsely represented on the Net.

But according to Ramin Marzbani, principal of Internet research company www.consult, there are still fairly few dollars spent online. In fact, $200 million last year. While this is not an insignificant amount, it remains dwarfed by more traditional commerce. An Australian Bureau of Statistics survey backs up Marzbani's figures. It found that only 2 per cent of Australian adults had yet used the Internet for shopping. This in spite of almost one in five households now having an Internet connection. According to the ABS, compared to Eftpos, ATMs or telephone payment systems, the Internet still has a way to go before it is accepted for payments applications. "Less than 1 per cent of adult Australians had used the Internet in the three months to November 1998 to pay bills or transfer funds. During the same period nearly 36 per cent of adults had used a telephone to pay bills or transfer funds, 61 per cent had used Eftpos and 68 per cent had used an ATM." Far from being a conduit to customers, the real benefits of the Internet to business will be initially quite subtle, Zanich believes. She predicts the Internet will allow companies to consolidate their information management strategies. "If today you can access 20 per cent of documents to make a 50 per cent accurate decision, and then in the future you can use indexing and searching and knowledge management tools, think how much better a decision you will be able to make," she says. "The information sources available will increase exponentially from, say, five to 5000. Now, an executive only wants to do the same amount of reading, so you need those 5000 articles distilled." Smart tools such as software agents, she believes, will help, so that people have access to much more information and therefore have a better probability of making the right decision.

There's a long way to go, though. Ernst & Young, which has tracked knowledge management -- and was last year named as one of the top five Most Admired Knowledge Enterprises globally -- has found a patchy understanding of the need for knowledge management in Australia. Gregory Reid, chief knowledge officer for Ernst & Young, was drafted from North America to implement the knowledge management structure for the company in Australia. Reid, while an evangelist for knowledge management, does not believe it is a universal panacea. "A localised [company] does not need a heavy dose of knowledge management systems or processes to work well -- they [the employees] have a form of knowledge management when they see one another and have meetings and share their competencies," Reid says. "But when you go global, across industries, across service sectors, knowledge management represents an opportunity to leverage off other areas of business. Without knowledge management you would not necessarily go out of business; but if your competitors are strong in knowledge management, then the chance is that they will best you," Reid warns. "If you have groups in Australia, the US, Europe and Argentina all working in the energy sector, knowledge management techniques allow them to deliver a seamless service to the customer. If they are independent groups, then [they] could not."Reid believes that once a company has determined a need for knowledge management the push has to come both from the top down: to impose a culture and provide an incentive for staff to embrace knowledge management; and from the bottom up: to contribute to and access the knowledge pool. Elements in a knowledge management strategy might include drawing in external information which can be passed on to staff for application (which is what Zanich predicts); allowing collaboration and the sharing of tacit information and knowledge; and capturing subject matter expertise. Reid says that once that knowledge is captured, it is important to separate the good from the bad and the best from the rest. With this system in place it is then important to "incentivise" staff according to how much they contribute to the knowledge base, how much they draw from it, as well as how well they are able to gain and leverage their personal expertise, Reid says. Management consultancy McKinsey & Co agrees that knowledge shouldn't be underestimated as a corporate asset in the next millennium. McKinsey maintains that in the corporation of the future, knowledge -- along with brand, reputation and relationships -- will play a much greater role in determining how successful a company can be. For some time McKinsey worldwide has been examining the fundamental nature of the role of the corporation as an institutional entity in capital societies. (In plainspeak -- it's been looking at the structure of businesses and what will make them successful in the future.)Managing partner John Stuckey says that so far the research points to very little change being achieved in the outward appearance of companies. But as is often the case, appearance masks the true picture. The unchanged appearance is the sum of two opposing forces at play on the modern corporation. First, over the last 10 to 15 years there has been much evidence of companies which are disaggregating, outsourcing and going through a process of "deconglomeration" as they concentrate on core activities. "The ultimate outcome is a world of fragmented small businesses," Stuckey says. But that trend is countered now by a second force: the aggregation of business -- where it makes sense for a company to build its business around intangible assets such as knowledge, brands and relationships with customers and suppliers. Stuckey believes that knowledge, brands and relationships will be increasingly important sources of economic assets in the future. "They are, though, difficult to trade," Stuckey acknowledges. Therefore, he predicts more companies will move to become joint owners, thus spurring aggregation. This perhaps gives a clue to the recent decision by both News Corp and PBL to invest in telecommunications service provider One.Tel.

"The old organisation was vertically integrated; it was based on 'dig and deliver'; it needed scale. But the profitability of such a company is going down because of globalisation, and free trade and microeconomic reform," Stuckey says. While mergers and acquisitions (M&As) of such corporations might deliver last-gasp growth, "in five years with hindsight [some] M&As might not prove economically worthwhile," he says. McKinsey & Co believes that the net effect of the move to deconglomerate business, coupled with the new age aggregation, will be to leave a corporation looking from the outside the same business as it always was. Internally, however, its structure must be radically different -- and that demands an overhaul of the information flow and control.

One example where information control will be critical is in the area of customer relationships, especially as those customers move online. Besides raising technological issues, this will force an ethical examination of the practice of gathering data about customers. There is already a debate raging as to whether the Intel Pentium III chip will deliver to corporations doing business on the Net automatic access to customer information. The chip contains a unique identifier, and there are fears that personal privacy will be threatened as savvy corporations use this as a means of keeping track of, and in contact with, their customers.

Ethics aside, keeping close to the customer will be an even more important issue for corporations to manage when the customer inhabits cyberspace. The requirement to build on customer relationships has been explored by George Colony, president of Forrester Research. Colony claims that "in the Internet economy customers will make seemingly trivial choices (killer clicks) that have a long-term, far-reaching impact on suppliers". Colony maintains that corporations must recognise this now, and attempt to "harvest" such killer clicks as a way of ensuring market share in the future when Internet trading becomes more robust. His argument is that no one is going to trawl the Internet comparing all the services and products, but is more likely to stick with the early clicks -- that is, what has been bookmarked.

He says that "smart middlemen will become powerful influencers of killer clicks. As an example, eWallet offers a standard portable one-click buying facility: you set up your name, address and credit card and that information becomes the basis for your buying from any site. What consumers choose as a payment method on their eWallet will have a titanic impact on Visa, MasterCard and American Express. And eWallet could influence who gets chosen. "Get your marketing guys to scout out the killer clicks in your business and harvest them early. That's a step to winning your fair share of the Internet economy and killing your competitors with clicks" is Colony's advice.

PricewaterhouseCoopers' Balboni agrees. Admitting to earlier scepticism about the Internet and whether it would profoundly affect business structure, Balboni now believes that the bandwidth barrier will be breached and the floodgates to new applications opened, and soon. "What we see happening is that companies are claiming bandwidth in much the same way as in earlier generations they claimed the bricks and mortar equivalent," Balboni says.

"A retailer once said: 'I need the corner of King and Castlereagh [Sydney] streets to bring buyers and sellers together and make a market.' Now companies are putting their own satellites in the sky and building virtual private networks. It's the new millennium equivalent of deciding where to put the office -- 'I want a big fat pipe to every one of my customers'," he says. This attitude, Balboni promises, will spawn significant changes in business structure and relationships. In particular, he subscribes to the theory of supply chain disintermediation. "It's a pretty powerful thing. Who needs a retailer when you can buy books direct from the publisher or a new entrant? This re-engineers the entire supply chain," he says. McKinsey's Stuckey, too, believes that the Internet and other technologies will prompt change. He warns that corporations cannot ignore these drivers, because of the economics of the information revolution which are driving down the costs of interaction. Stuckey says one Australian company which appears to have heard this message and is restructuring itself already is News Corp. The organisation has forged a series of links with companies with which it wishes to trade knowledge or brand. It has disaggregated its earlier old-style businesses, establishing a network of linked businesses which each have separate reporting and decision-making processes, and it is keeping electronically close to the customer.

Some organisations won't have to make any transformation, Stuckey says. "Some, like Microsoft, were born as a corporation of the future." However, where reform is needed, executives will find the key in definition of the corporate boundary, Stuckey says. That boundary need not be limited to wholly-owned subsidiaries but might also encompass arms' length ventures, franchises, joint ventures. Western corporations might find some currency in the Japanese keiretsu model. [Keiretsu is the term for the post-war Japanese model of intercompany cooperation, see, Meta View: "The Externalisation Imperative", February CIO, for a more in-depth examination.] Companies need also to examine their financial architecture -- in some cases creating separate entities which can act independently and therefore attract talented people, and offer more financial incentives than might be possible in a more hidebound traditional corporate. And in the information-rich next millennium, the hiring of and holding onto skilled and smart people will be paramount. McKinsey & Co characterises this as "winning the war for talent". Research has found a "blip in the demography" of 30-45-year-old talent which is necessary to sustain corporations of the future. McKinsey's (admittedly US-centric) investigations found that the peak in supply of talent would emerge next year, followed by a 15 per cent decline in supply over the coming 15 years.

What is being sought is sophisticated talent with "global acumen, multicultural fluency, technological literacy, entrepreneurial skills, and the ability to manage increasingly delayered, disaggregated organisations". Since for the last two decades corporations have vastly undervalued people as an asset, according to Stuckey, the demand for talent, coupled with the short supply, will force a rethink in human resources. Hiring and keeping talent does not, though, necessarily mean paying astronomical salaries. Financial reward is important, but so is intellectual challenge. The smart corporations of the future will link the two, offering talent "stakes" in what they are doing -- linking their performance ever more tightly with their reward, all the while ensuring that the talent's opinion is heard. This might mean taking a leaf from professional companies' structures, where partnership is often substituted for industrial-age hierarchy. The next millennium offers little comfort for drones.

Strike Up the Bandwidth

At a purely technical level, bandwidth is the key to delivering the next quantum leap for business. While computers get faster, and software smarter, once telecommunications bandwidth is cheap and plentiful a new era will emerge for business applications. Fred Balboni, Asia Pacific leader for PricewaterhouseCoopers' IT and systems integration practice, claims that "the amount of traffic being carried over the Internet is doubling every 100 days, such that within the next two years the amount of data carried over the world's telecomms infrastructure will exceed that of voice. In the next few years the telecommunications industry will begin to travel down the same path the computing industry has been on since the late 1970s. This is partly due to deregulation and increased competition, but more importantly to the tremendous increase in the demand for bandwidth resulting from the growth of the Internet."According to the company's 1999 technology review, once new communications technology is in place the floodgates will open to dramatically increased amounts of bandwidth and lead to a radical overhaul of telecommunications pricing. Balboni recommends CIOs start drafting their plans for new information systems designs, which essentially assume telecommunications bandwidth is free.

"One question that CIOs should ask themselves is: 'How would I redesign my architecture if communications were free? -- that means the applications structure, the data structure and the technology infrastructure'," Balboni says. While not subscribing publicly to the "free telecommunications" theory, Telstra has been trying to switch business onto the new communications-centric business applications which will emerge over the next decade. In February, the company kicked of a series of national roadshows dealing with the topic, which appears to have tapped into a pent-up demand. More than 600 senior executives accepted an invitation to Telstra's 7am launch of the Business of the Future presentations.

For telecommunications providers vision is crucial. Included in the PricewaterhouseCoopers technology review is an interview with Dr Hagen Hultzsch, a member of the board of management of Deutsche Telekom. Hultzsch claims that DT is transforming itself as part of the communications revolution from a supplier of telecommunications into a "telematics services provider" -- that is, a composite information technology and telecommunications supplier.

"Today telematics applications include Internet use, videoconferencing, and telecommuting. Those companies that are quick to recognise and apply the immense potential of telematics services will achieve a key competitive advantage," he claims. Hultzsch goes on to suggest that typical applications might include full range electronic banking, global payments systems, electronic commerce and telemedicine. He predicts "in 10 years' time the networked user will require a daily volume of around 30 gigabytes of individualised information". Sceptics of this rapid rise in demand might be swayed by newly released Australian Bureau of Statistics figures which show that 5 per cent of all employed adults were now able to access their company's computer systems from home via a modem. Of this group, 312,000 had teleworking agreements in place with their employers, a 128 per cent surge in just six months.

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