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The Engine That Drives Success

The Engine That Drives Success

A quick reading of my work would expose this interpretation as a fanciful distortion. Of course the corporation remains the basic unit of commerce; it's the vertically integrated corporation that is failing. Some of the hundreds of business webs we studied are loose couplings, but most are not, having very tight integration of their business processes. Focused companies that orchestrate business webs are not smaller; they tend to have faster revenue growth and better prospects.

Take the furniture industry as an example. Herman Miller has orchestrated a high-performance business web. The best design talent - industrial designers who no furniture company could hire - are brought into the company's business web to ensure innovative designs. Herman Miller's distribution channel is an IT-based network of partners who customize furniture for consumers. And the company increasingly outsources manufacturing to companies that can do a better, cheaper job - again exploiting the power of the Net. The tonic of the marketplace is brought to bear on many business functions that traditionally have been shielded from the market by corporate walls. In Herman Miller's case, the results are clear - dramatically better products, revenue growth, net profit margin, ROI, revenue per employee and inventory turns compared to key competitors. (And they also have better IT.)

Companies can also achieve advantage through IT-enabled relationships in which customers are brought into the business web. Tesco is a food retailer in the United Kingdom that has created an online grocery shopping experience that exploits the effectiveness of its supply chain systems. Customers love it, and the business is profitable and growing.

It is true that as the Net becomes a powerful infrastructure, and as new standards enable rapid deployment of applications, some technology innovations can be brought to market and replicated faster. However, it's not so easy to do all the really hard work that makes a system advantageous to a company such as changing business processes, organizational structures, culture and human behaviour. The corporate graveyard is strewn with the bodies of those who naively thought it was easy to change a culture. Launch a business innovation or new business design based on IT, and the biggest challenge for your competitors to replicate will be the changes you made to your business, not the technology that inspired them. Companies that successfully alter their business around IT can achieve a significant window of competitive advantage.

Carr's Blueprint for Failure

This is not just an academic debate. The post-dotcom world, a tough economy, and considerable C-level cynicism about IT and innovation in general provide fertile ground for Carr's perspective. The trouble is, some companies might actually implement his recommendations - spend less; follow, don't lead; focus on vulnerabilities, not opportunities. Taken together, this is a blueprint for failure.

In some situations, it may make sense to be a follower to keep up and achieve competitive parity. But in others you should try to be a leader - not necessarily a big spender, but a leader where it counts. Many followers have tried hard to displace the competitive leaders I have discussed above. Most have failed.

As for spending less, evidence is strong is that services-oriented architectures, intelligent information networks, adherence to standards, autonomic systems, virtualization and database consolidation (to name a few) provide a basis for IT cost reduction. But do this as part of a strategy for more effective IT. Cut fat, not your company's nervous system.

Finally, manage your vulnerabilities, but focus on opportunities - not just for IT but for innovative business models enabled by IT. Think like Maple Leaf Foods, a company investing in a system that will provide supermarkets and consumers with detailed information about the history of a piece of meat, ensuring safety and quality. The program is based on new technologies including tools for DNA tracking. Transparency and accountability throughout their business web from farm gate to plate will help the company differentiate its products.

Ultimately companies face a choice. They can innovate in IT - a resource still in its infancy - to enable new business designs that help them differentiate in the market. Or they can yield to the pressures and cynicism of a difficult business environment. Punishment is already proving swift for those who make the wrong choice.

Don Tapscott has written 10 books about technology and business strategy and is the president of Toronto-based New Paradigm Learning Corporation. He is currently launching a research project titled "Information Technology and Competitive Advantage in the 21st Century". He can be reached at don@tapscott.com

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